We are independent & ad-supported. We may earn a commission for purchases made through our links.
Advertiser Disclosure
Our website is an independent, advertising-supported platform. We provide our content free of charge to our readers, and to keep it that way, we rely on revenue generated through advertisements and affiliate partnerships. This means that when you click on certain links on our site and make a purchase, we may earn a commission. Learn more.
How We Make Money
We sustain our operations through affiliate commissions and advertising. If you click on an affiliate link and make a purchase, we may receive a commission from the merchant at no additional cost to you. We also display advertisements on our website, which help generate revenue to support our work and keep our content free for readers. Our editorial team operates independently of our advertising and affiliate partnerships to ensure that our content remains unbiased and focused on providing you with the best information and recommendations based on thorough research and honest evaluations. To remain transparent, we’ve provided a list of our current affiliate partners here.

Can I File for Bankruptcy?

By Carol Francois
Updated May 16, 2024
Our promise to you
WiseGeek is dedicated to creating trustworthy, high-quality content that always prioritizes transparency, integrity, and inclusivity above all else. Our ensure that our content creation and review process includes rigorous fact-checking, evidence-based, and continual updates to ensure accuracy and reliability.

Our Promise to you

Founded in 2002, our company has been a trusted resource for readers seeking informative and engaging content. Our dedication to quality remains unwavering—and will never change. We follow a strict editorial policy, ensuring that our content is authored by highly qualified professionals and edited by subject matter experts. This guarantees that everything we publish is objective, accurate, and trustworthy.

Over the years, we've refined our approach to cover a wide range of topics, providing readers with reliable and practical advice to enhance their knowledge and skills. That's why millions of readers turn to us each year. Join us in celebrating the joy of learning, guided by standards you can trust.

Editorial Standards

At WiseGeek, we are committed to creating content that you can trust. Our editorial process is designed to ensure that every piece of content we publish is accurate, reliable, and informative.

Our team of experienced writers and editors follows a strict set of guidelines to ensure the highest quality content. We conduct thorough research, fact-check all information, and rely on credible sources to back up our claims. Our content is reviewed by subject-matter experts to ensure accuracy and clarity.

We believe in transparency and maintain editorial independence from our advertisers. Our team does not receive direct compensation from advertisers, allowing us to create unbiased content that prioritizes your interests.

Bankruptcy is a legal process designed to allow an individual or business to settle all their debts when they find they are unable to meet their obligations. In the United States, there are two commonly used options when you file for bankruptcy protection; Chapter 7 and Chapter 13. Each chapter has separate eligibility criteria to determine which option is most suitable.

In addition to these two well known types, there are 4 others. Chapter 9 is municipal bankruptcy, Chapter 11 is business reorganization, Chapter 12 applies to family farmers and fisherman, and Chapter 15 is for ancillary and international firms. The overwhelming majority of bankruptcy filings in the USA are Chapter 7.

Chapter 7 bankruptcy is for individuals who owe more than they can pay and are seeking a complete discharge of all debts. It is important to note that this option is only for settling of unsecured debts, such as credit cards, personal loans, remaining balance on car loans after repossession and medical bills.

Secured loans, such as car loans and mortgages cannot be settled under Chapter 7. These assets will be seized by the creditors, resulting in repossession of the car and foreclosure of the house. You cannot file for bankruptcy to discharge student loans, taxes, fines, child and spousal support and legal settlements.

In 2005, the US government enacted several significant changes to the bankruptcy laws, the most important being the "means test." Under this section, when a debtor is going to file for bankruptcy, they must provide their monthly income, based on an average of the last six months. This test is applied only to debtor whose income is above the state median income.

Deductions for obligations not included when you file for bankruptcy are subtracted from the monthly income. Standard valuations for living expenses are deducted based on the state of residency and disposable income is the value that remains. If this value is greater than $182.50 US Dollars (USD) per month, you must file Chapter 13 bankruptcy.

If the disposable income is less than $6,000 USD, you qualify for Chapter 7. If it is more than $10,000 USD, you do not qualify. If it falls between $6,000 and $10,000 USD and you are able to pay at least 25% on your unsecured debts, you must file Chapter 13. The calculation of what is included and excluded is complex and requires the assistance of a bankruptcy attorney.

In Chapter 13 bankruptcy, the debtor maintains ownership of all the assets and must make monthly payments for the next three to five years to repay creditors. If you have the financial means to pay at least a portion of your debts, you can file for bankruptcy under Chapter 13.

If you are able to pay just the monthly minimum payments, contact a credit counselor. There are alternatives to bankruptcy that can help. These options include negotiating a lower interest rate and paying a portion of the overall debt.

WiseGeek is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Link to Sources
Discussion Comments
WiseGeek, in your inbox

Our latest articles, guides, and more, delivered daily.

WiseGeek, in your inbox

Our latest articles, guides, and more, delivered daily.