Nobody likes being in debt. (Well, actually, there are good kinds of debt that can help you in the long run, but that’s a topic for a different time.) The worst thing about debt is that it often leads to more and more debt. It’s a vicious cycle that makes people feel like their drowning with no way out. As it happens, there is a way out; bankruptcy. Bankruptcy has an understandably negative connotation (thanks, Wheel of Fortune), but in reality, it is designed to help people unable to deal with crushing debt.


Bankruptcy is a process to have yourself (yourself and your spouse, or your business) legally recognized as unable to pay outstanding debts. It’s a fairly complicated process. At its most basic, you lay out your financial situation for a judge and they will either help you set up a payment or discharge your debts outright. This allows you to start to rebuild your finances relieved of creditors hounding you. In fact, you receive a level of protection even during the filing process, before your case is heard. The two most common types are chapter 7 and chapter 13. Chapter 7 is for those who want to completely discharge any eligible debt. It is usually used by those with no real assets. It is considered liquidation because it effectively gives your finances a clean slate (more on that later). Chapter 13 is more reorganization. It is for those who either don’t qualify for chapter 7 for various reasons or want to keep the assets they possess. You still have to pay the debts with chapter 13, but you receive relief and a payment schedule tailored around your ability to repay.

Why Doesn’t Everyone File For Bankruptcy?

The biggest reason is that bankruptcy fraud is a crime. If you try to get your debt discharged simply because you don’t want to pay it instead of because you can’t pay it; not only will it not work, but it will land you in some serious legal hot water. Additionally, bankruptcy shouldn’t be looked at as a financial cure-all. When I mentioned a ‘clean slate’ earlier, I meant starting at zero debt-wise. Bankruptcy wreaks havoc on your credit. Moreover, all of the records you file with the court become public knowledge. Your finances, in a not so great state, laid out for all to see. This may not seem like a big deal if you really need the help. But, it is a reason not to take bankruptcy lightly.


Bankruptcy is often framed as a failure or something final. That’s simply not the case. You can rebuild your finances from both chapter 7 and chapter 13 bankruptcy. That’s the whole point of the process. That isn’t to say that it’s going to be easy. It probably won’t. You’ll have to look at what got you into the situation in the first place and make sure you don’t follow the same behavior again. Know that it will take time. Chapter 7 bankruptcy will stay on your credit report for 10 years, you can’t hide from it. Chapter 13 will remain for 7 years. While both of those are a long time, it gives you ample opportunities to fortify your credit. That way, when it finally comes off your report, your credit can be stronger than ever. Bankruptcy is an unfortunate, necessary evil. It’s certainly not a situation you ever want to find yourself in. But you’ll be glad it’s there if you ever really need it. Legal Disclaimer: This is for informational purposes only and should not be considered legal advice.