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An elderly couple receiving bankruptcy credit counseling

What you need to know about bankruptcy

Bankruptcy is a legal proceeding filed in the United States Bankruptcy Court that permits you to obtain a discharge of your obligation to pay certain debts. The bankruptcy laws are intended to allow an honest, but unfortunate debtor an opportunity to get a “fresh start.”

Bankruptcy, however, is not a free ride. Depending on your personal situation and the laws of your state you may have to liquidate some of your property and assets.

Know your rights

A bankruptcy filing will also become part of your credit report for 10 years and will make it more difficult and expensive to obtain new credit. It may be more difficult to rent an apartment, buy or rent a car, or even buy insurance because you will now be considered a higher risk in any transaction that involves credit or requires you to make a regular series of future payments.

There is also a good chance that your credit cards will be cancelled 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.

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. Bankruptcy counseling is mandatory for some forms of personal bankruptcy.