Bankruptcy basics

What bankruptcy actually does, what it can't do, and whether it fits your situation.

What does bankruptcy actually do?From the debtor's perspective, bankruptcy does two things at its core: it stops collection through the automatic stay, and it permanently ends your legal responsibility for many debts through the discharge, though certain types of debt may survive it. The chapters, the trustee, the court, and the paperwork are all part of the legal process that makes bankruptcy work. But bankruptcy is also a balancing act: the system is designed to give honest debtors meaningful relief and a fresh start while protecting creditors' rights and providing a fair distribution to creditors when unprotected assets or disposable income are available. It happens in federal court, and it's used by hundreds of thousands of households every year, most of whom keep everything they own.
What can't bankruptcy fix?A fair amount, and knowing it up front prevents expensive disappointment. It can't erase support, recent taxes, most student loans, or fines. It can't keep a house or car you can't afford going forward. It can't protect cosigners (except partially in Chapter 13), restore your credit overnight, or undo transfers and payments already made. And it can't fix an income that doesn't cover a reasonable life; it only clears the debt standing between you and one.
What is the difference between Chapter 7 and Chapter 13?Chapter 7 wipes out most unsecured debt in a few months without a repayment plan. Chapter 13 reorganizes your debts into a three-to-five-year plan, which lets you keep property you might otherwise lose and catch up on things like a mortgage.
Will everyone know I filed? Is bankruptcy public?It's a public court record, but in practice almost nobody looks. There's no newspaper announcement anymore, no list at the courthouse door, and your employer isn't notified (with narrow exceptions like an active wage garnishment ending). The people who reliably learn are your creditors, anyone you owe, and whoever pulls your credit. For most filers, the audience is exactly the people who already knew about the debt.
How often can you file bankruptcy?You can file anytime; the limits are on how often you can receive a discharge. The big ones: eight years between Chapter 7 discharges, two years between Chapter 13 discharges, four years from a Chapter 7 to a later Chapter 13 discharge, and six years the other direction (with exceptions). The clocks run filing date to filing date. And a case without a discharge can still be worth filing, which is the part people miss.
Common bankruptcy myths, correctedThe big ones: nobody comes to take your stuff (most filers keep everything); you don't lose your retirement; you're not required to repay all your debt in Chapter 13; your credit isn't ruined for ten years; your boss and neighbors won't be notified; you can file again after a prior case; and filing doesn't mean you failed. Each myth has a full article behind it; this page is the index of fears.

Bankruptcy basics

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