5 important bankruptcy questions and answers

If you have never faced bankruptcy before, it is new territory. Based on your own research and experiences, you think it’s the right choice considering your situation, but that doesn’t make it any less daunting. You may still have a lot of questions.

We are here to help. Below are five questions clients may ask. While more specific questions depend on your exact situation, this should help you get started.

1. Is bankruptcy going to ruin your credit for life?

No. At least, it doesn’t have to. You can rebuild your credit after bankruptcy and it may even recover to the point that it is as good or better than it was before the filing — with the added bonus of no overwhelming debt. There’s no doubt that your credit score will drop initially, but you have plenty of options to rebuild it.

2. Do you and your spouse have to file together?

No. You may opt to do so, but it’s not mandatory. If you would like to file on your own and keep your spouse out of the proceedings, you can. There are situations in which this is preferable to a joint filing. Moreover, your spouse may be glad to know that your choices do not have to impact their financial position so directly.

3. Are you responsible for small business debt?

You may be. It depends on exactly how you obtained the debt. In many cases, small business owners do carry some level of personal liability for the money they borrow, especially if they use their own social security numbers during the application process. This could mean that, even if you shut the company down, you still owe that debt. This is one case where the specifics really matter, though, so you need to look into all of your options.

4. What makes Chapter 13 different from Chapter 7?

It’s all about the way debt gets addressed. In Chapter 13, a repayment plan gets set up and you still pay off most or all of the debt. In Chapter 7, you liquidate assets, pay off a portion of the debt and then eliminate the rest. Chapter 7 is over faster, while Chapter 13 allows for retention of assets and affordable payments.

5. Can you eliminate any and all debts?

Not always. Most of the time, people are dealing with business loans, credit card debt, medical bills and things of this nature. They can discharge them. Some debts, though, cannot get discharged. These include alimony payments and child support payments. In many cases, they also include student loans, though there are exceptions for undue hardships.

Moving forward

If you still have questions about bankruptcy, make sure you take the time to really dig into the process and find out what steps you need to take for a successful future.