Frequently Asked Bankruptcy Questions

By Cara O'Neill, Attorney
Look for your question in our FAQ or simply start reading for an overview of bankruptcy law.

People file for bankruptcy for one reason: to get rid of overwhelming debt. Bankruptcy severs (breaks) the debt contract that the bankruptcy filer signed when originally agreeing to pay back borrowed money.

Most individual filers choose one of two types of bankruptcy: Chapter 7 or Chapter 13.

Read below for basic information on these kinds of bankruptcy. Look farther below for answers to commonly asked bankruptcy questions.

Chapter 7

Chapter 7 bankruptcy—or “liquidation bankruptcy”— quickly wipes out “dischargeable” debt without requiring you to enter into a payment plan. You’re allowed to exempt (keep) a reasonable amount of property, such as household furnishings, clothing, and a modest car. The bankruptcy trustee—the court-appointed official tasked with managing your case—will sell your nonexempt property and distribute the funds to your creditors.

Not everyone can file for Chapter 7 bankruptcy, however. You must qualify by passing the “means test”—a test that measures your financial ability to pay back your debt.

Chapter 7 bankruptcy tends to work best for:

  • people who aren’t behind on a mortgage or car payment (unless they’re willing to surrender the house or car to the bank), and
  • people whose debt consists mainly of credit card balances, medical bills, and personal loans (typical dischargeable debt that can be wiped out in bankruptcy).

Chapter 13

Chapter 13 bankruptcy—called “reorganization bankruptcy”—works well for people who are unable to qualify for Chapter 7 and those who have a significant amount of “nondischargeable” debt. “Nondischargeable” means debt that bankruptcy won’t discharge (wipe out). Examples include spousal or child support and past-due taxes.

In Chapter 13 bankruptcy, for three to five years, the filer pays all disposable income to the trustee, who in turn pays the funds to the creditors. (Disposable income is the amount of earnings left after paying reasonable living expenses.) Once the filer successfully completes the repayment plan, any remaining balance of dischargeable debt gets wiped out.


Although bankruptcy is an effective legal process that helps financially distressed people get back on their feet, it can have serious, irreversible consequences. Not all debt goes away in bankruptcy, and filers might not be able to keep all of their assets. (Many people do, however, get to keep everything they own).

It’s critical to know how bankruptcy will affect your property and debts before you proceed. Will you lose some of your property? Will bankruptcy wipe out all of your debt? Find out the answers to these questions before you file. Know that you can always consult a bankruptcy attorney for detailed information about your situation.

To learn more, check out our answers to some of the most frequently asked bankruptcy questions.

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