Managing Your Debt
Bankruptcy

If every attempt to control your spending and clean up your credit has failed, bankruptcy may be the only answer. When you file for bankruptcy, you are asking a federal court to declare that you are unable to pay your debts. Before filing for bankruptcy, take these points below into consideration.

• You may have heard that bankruptcy will "wipe the slate clean." Note, however, that some debts cannot be wiped out:
  • Federal, state and local taxes
  • Student loans (unless there is an "undue hardship")
  • Alimony and child support
  • Debts incurred through fraud, larceny or theft
  • Fines or penalties for violating the law, such as parking tickets
  • Luxury goods or services with a value of $1,000 or more, if purchased within 60 days of filing for bankruptcy
  • Debts not listed in the bankruptcy filing
  
  
• There are issues to consider, as well. The bankruptcy may:
  • remain on your credit report for up to 10 years.
  • make it difficult to get additional credit. When you do, you may get less than you asked for, pay a higher rate of interest, or be required to make a larger down payment.
  • affect your ability to get a job, since employers can do a background check for employment purposes.
  
  
• There are two types of personal bankruptcies:
  • Chapter 7 or "Straight" Bankruptcy - This is for people with no steady income and few assets. Most or all debts are canceled. Assets are liquidated (converted to cash) by a court-appointed trustee and used to repay part of your debts.
  • Chapter 13 or "Wage Earner" Bankruptcy - This is for people who have steady incomes. Under a court-approved repayment plan, they pay back some or all of their debts, usually in a three to five year period. Assets are not sold to repay creditors.

  You should consult an attorney who specializes in bankruptcy matters if you are seriously considering this action.