Individuals who want to file for bankruptcy usually have two options known as Chapter 7 and Chapter 13. The former is the traditional bankruptcy and lets you discharge personal loans, medical bills and credit card debt. That’s why you might hear it referred to as liquidation bankruptcy.

The Means Test

Everyone who attempts to file Chapter 7 has to meet certain criteria determined by an evaluation of income, debt and expenses commonly called a bankruptcy means test. To qualify, you have to show that your income limits and non-exempt possessions indicate that you are unable to pay back your debts. Exempt assets include any vehicles and tools used for work, a limited amount of personal possessions, current wages, insurance, pensions and public benefits.

Over 95 percent of people who use this type of bankruptcy have their arrears cleared. However, Chapter 7 can’t provide relief from all debts. People still have to pay alimony, child support, student loans and taxes.

Filing for bankruptcy myths

It’s a myth that people who file for bankruptcy will lose everything. The majority of filings are considered no-asset cases, which means that you won’t have to give up possessions. The law allows for exemptions, but even the items that aren’t covered under that status generally won’t interest creditors.

Bankruptcy and your credit score

Many people are afraid that bankruptcy will ruin their credit score. Yes, the credit bureaus will lower scores, and filing for bankruptcy will stay on your credit report for six to ten years. However, people who are good candidates for bankruptcy usually have a low credit score already because of missed payments, so it doesn’t affect them as much.

A late payment of just 30 days can affect the score negatively. Repossessions, lawsuits and defaults also hurt a score significantly. If you’re already struggling, a bankruptcy creates a clean slate and you can start to rebuild credit after the discharge.

Advantages of bankruptcy

Once you file for Chapter 7, creditors must cease their aggressive collection tactics. You will also get to retain your wages and any property that you purchase going forward. Bankruptcy doesn’t stop you from borrowing money again, although it will be more expensive than before. Entering Chapter 7 bankruptcy allows you to notify creditors of the fact instead of having to explain late or missed payments, repossessions, defaults and other reasons for your financial difficulty.

Disadvantages of filing for bankruptcy

Of course you have disadvantages too. Mainly, your creditworthiness will take a hit. New lines of credit will come with higher interest rates for up to three years, and getting a mortgage in that time frame will be very difficult. You also have to give up current credit cards. However, you can repair credit in time by engaging in financial discipline and getting ahead of your borrowing.

Bankruptcy is not an admission of character flaws or failure. It’s simply an economic remedy that you use when unforeseen circumstances affect finances in a negative manner for an extended period of time.

Find out more about Bankruptcy in our guide: All About Bankruptcy

Learn about the ways bankruptcy can help you. Contact us for a free consultation by clicking here or calling (912) 351-9000. We’re here to help you gain the financial freedom you deserve. The Law Offices of Barbara B. Braziel proudly serves the greater Savannah, GA area.

We are a debt relief agency. We help people file for bankruptcy relief under the U.S. Bankruptcy Code.


By continuing to use the site, you agree to the use of cookies. more information

The cookie settings on this website are set to "allow cookies" to give you the best browsing experience possible. If you continue to use this website without changing your cookie settings or you click "Accept" below then you are consenting to this.