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 some service members and veterans who are 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.
Understand Your Options
Before you make a decision, NFCC-certified credit and debt counselors can walk you through the advantages and disadvantages of declaring bankruptcy as well as any available alternatives. Generally, you should pursue other options, such as debt consolidation or a debt management plan, before deciding on bankruptcy as a last resort.
NFCC-certified counselors 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 want to make sure you have all the facts. Visit our bankruptcy page and our bankruptcy counseling page to learn more and get answers to frequently asked questions, including:
- Do I need an attorney to file for bankruptcy?
- Can I keep my credit cards after filing?
- Can I be fired for declaring bankruptcy?
There are two 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 nonexempt assets.
Understand the Consequences
Written by an NFCC vice president, this blog entry lays out some of the potential consequences of filing for bankruptcy, which can affect your credit card interest rates, your ability to secure a mortgage, and even your consideration for future jobs.
NFCC experts have written other helpful blog entries on bankruptcy as well.
- If you’re an active-duty military service member considering bankruptcy, contact your local Armed Forces Legal Assistance office. The office staff can help you learn whether you qualify for benefits under the Servicemembers Civil Relief Act.
- The American Bar Association provides information about legal resources available to military families.