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Things to Know About Bankruptcy 

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Bankruptcy is a serious financial step. It should only be used when all other debt relief options have failed. 

Before filing, gather all of your financial records. This will give you and anyone helping you prepare the bankruptcy paperwork a complete picture of your situation. 

It’s also a good idea to start saving for emergencies. A high-yield savings account is one option. 


Generally speaking, a bankruptcy filing can eliminate unsecured debts such as credit card, personal loans and some medical bills. However, it won’t get rid of secured debts such as mortgages and car loans. It will also not alleviate student loan debt. 

Before you file, make sure that you list all of your debts and assets on the bankruptcy form. Failure to do so could be considered fraud. Also, you must take a credit counseling course before your case can proceed. 

Some creditors will allow you to work out a settlement for less than what is owed on your debt. But, this option isn’t always feasible and may cause you to lose property that you have held as security. Before pursuing this option, it is best to consider other alternatives such as a debt-reduction plan with a credit counselor or working on budgeting your income and expenses to cut back on spending. This will prevent you from being tempted to buy things you can’t afford, which can lead to further financial problems. 


A bankruptcy filing can affect your assets in different ways. If you declare Chapter 7 bankruptcy, your nonexempt assets are put up for sale to pay your creditors. In contrast, if you declare Chapter 13 bankruptcy, your assets aren’t liquidated and you keep your property while working on a repayment plan for your debts. 

A successful bankruptcy erases unsecured debts, but it doesn’t eliminate secured debts like mortgages and auto loans. If you want to keep an asset that is securing an underlying debt, you can agree to “reaffirm” the debt in exchange for the right to continue keeping the property. 

You might be tempted to sell or transfer for safekeeping some of your assets before you file for bankruptcy, but don’t. Such actions can constitute fraud, and they can disqualify you from receiving a discharge. This applies even if the sales or transfers were made for life necessities such as food, shelter and utilities. 

Credit Score 

Filing for bankruptcy can immediately and significantly drop your credit score, and the notation that it is on your report will stay there for 7-10 years. This can make it difficult to get unsecured loans and can increase your interest rates on those loans that you do obtain.

However, it can also stop creditors from calling, levying (taking money out of your bank account), or repossessing any of your property and can even prevent foreclosure on your home and car repossession if you have a secured loan such as a mortgage. It can even eliminate student debt for some people if they meet certain criteria. 

To qualify for Chapter 7, you must pass your state’s “means test,” which has to do with income. This can include Social Security benefits, worker’s compensation, ERISA pensions, alimony, child support, and veteran’s benefit payments. If you don’t pass the means test, a Chapter 13 bankruptcy may be an option. 


A bankruptcy filing is a serious legal process that can have significant effects on your credit score, but it’s also a tool that debtors can use to get a fresh start. It may wipe out some unsecured debts or create a repayment plan with better payment terms, depending on the type of bankruptcy filed. It stops debt collection calls, debt lawsuits and wage garnishment, and it can help you rebuild your finances. 

When you file for bankruptcy, you must list your property and creditors and provide information about financial transactions. You must also attend a meeting with a trustee where you’ll be asked questions under oath. It’s a good idea to seek alternatives to bankruptcy, such as working with a credit counselor and making changes to your spending habits. A skilled Harrisburg bankruptcy lawyer can provide additional ideas for addressing your debt problems. Some debts, like student loans, mortgages and recent taxes, can’t be wiped out in bankruptcy.

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