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How does bankruptcy work?

“During 2020, there were 544,463 bankruptcy filings in the United States.”  –Administrative Office of the U.S. Courts

What is bankruptcy?

Bankruptcy is basically a legal process that involves an individual or company who has reached a point where they are not capable of paying their existing debts. The process is initiated by a debtor(s) or by the creditor(s) who file a petition for bankruptcy.

The debtor’s total assets are individually valued to determine their worth. Some or all of the assets may be used to pay the outstanding debts. The term bankruptcy can sound scary, but when you learn about the benefits, it will begin to appear more like a rescue plan.

How many types of bankruptcies are there?

In the United States, there are six chapters of bankruptcy:

Which chapter of bankruptcy is better?

Of the available chapters, Chapter 7 and Chapter 13 bankruptcy are the most common.  The reason Chapter 7 is one of the most common forms of bankruptcy, is because it is faster and debtors are able to retain most or all of their property.

With Chapter 13, filers are required to pay the creditors overt a 3 – 5 year repayment plan.  Since not everyone qualifies for Chapter 7, it is important to consult with a bankruptcy lawyer to learn your options.  Phone and in-person consultations are included in the Personal Legal Plan.

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Chapter 7 Bankruptcy

Chapter 7 bankruptcy benefits is one of the deeply discounted legal service benefits in the Personal Legal Plan.

Which bankruptcy allows you to keep your house?

The Chapter where you keep your house can primarily depend on the right circumstances.  For example, with Chapter 7, filers must be current with their mortgage payments.  Chapter 13 can have the opportunity to get caught up with late or missed payments.

While it may be possible for you to keep your home, you’ll need to be certain that you meet the requirements for any chapter that you file.  As a member of the Personal Legal Plan, you can consult with an actual bankruptcy lawyer to help determine if you meet the necessary criteria.

62% of personal bankruptcies in the United States were due to medical expenses.  –Harvard University

Will bankruptcy affect my job?

Ultimately, it can depend on your employer.  However, in most situations, filing for bankruptcy didn’t affect your current employment.  It could impact you if you’re applying for a new job in the private sector.

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Are bankruptcy hearings open to the public?

Yes, except in unique circumstances, bankruptcy court proceedings are open to the public, such as during a global pandemic (e.g. Covid-19) or when a judge is considering a matter that is under seal.

How does bankruptcy affect your credit?

Unfortunately, filing for any chapter of bankruptcy will drastically impact your credit score. It can reduce it by 130 – 240 points.  In addition, the bankruptcy can appear on your credit report for ten years with Chapter 7 and seven years with Chapter 13.


Since 1988, consumer bankruptcies have been on the rise.  In 2020, consumer bankruptcies accounted for 96.02 percent of all bankruptcies filed in the United States.

Bankruptcy vs Insolvency

When an individual or company files for bankruptcy, their assets are liquidated to pay the outstanding debts owed to a variety of creditors.  Insolvency is when an individual’s or company’s outstanding debts exceed their total assets.

Benefits Included in the Personal Legal Plan

When you become a member, you get a deep discount on Chapter 7 Bankruptcy.  That’s not all.  For as little as $24.95 per month, you could receive unlimited phone consultations and in-person consultations (for each new legal matter), lawyer made phone calls and letters written on your behalf (for each new legal matter).  Learn More

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Once you become a member, you can consult with a lawyer in your area or the area you need assistance with in addition to utilizing all the legal plan benefits.