Declaring bankruptcy is one of the most serious financial decisions a person can make. But sometimes, it’s the only way to truly achieve a fresh start. Bankruptcy is a legal proceeding that allows you to obtain a discharge from your obligation to pay certain debts. For anyone who is facing extreme debt, declaring bankruptcy can be the best option for getting your head above water. Bankruptcy is not a free ride. Depending on your situation and the laws of your state, you may have to liquidate some of your property or assets. A bankruptcy filing will become part of your credit report for the next 10 years, making it more difficult and expensive to get new credit. This can affect your ability to rent an apartment, buy or rent a car, or even buy insurance.

Understanding Your Options Before You Make a Decision

A bankruptcy credit counseling session with NFCC will help ensure a full understanding of the potential advantages, disadvantages and alternatives to declaring bankruptcy before taking action.

Generally, bankruptcy is a last resort option and you should pursue debt consolidation or a debt management plan beforehand. An NFCC credit counselor can help make sure that you’re aware of these options and talk through considerations that are important to you, including whether filing for bankruptcy will affect your security clearance.

Declaring bankruptcy is a momentous decision, and we are here to make sure you have all the facts.

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Main Types of Personal Bankruptcy

Chapter 7

This is the most common form of individual bankruptcy. Under Chapter 7, a trustee is appointed to sell or liquidate any of the debtor’s nonexempt assets or property in order to raise money to make payments to creditors. (Examples of nonexempt assets include a second car, family heirlooms, or a coin collection.) An exempt asset is property that the law allows you to keep.

Chapter 13

This is an option for individuals with regular income. Under Chapter 13, you can repay all or some of your debt over a three-to-five-year period through a monthly payment plan that is approved in bankruptcy court. Under Chapter 13, a trustee supervises the case and administers payments to creditors but does not take possession of non-exempt assets.

There is a good chance that your credit cards will be canceled if you file for bankruptcy, which may complicate otherwise routine transactions that require a credit card for a deposit or as a form of security. And, because bankruptcy is a matter of public record, it might carry a stigma in your community or interfere with employment prospects in your chosen field.

As attractive as getting a fresh start may seem, it will come at a cost. This is why declaring bankruptcy is considered a last resort.

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