What Is Bankruptcy and Can It Help Me?
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Bankruptcy is a legal process where a federal court helps you deal with debt you cannot pay. The court can wipe out some or all of what you owe, or give you a plan to pay it off over time. While your case is active, the court also protects you from creditors (the people or companies you owe money to). Collection calls must stop, and money cannot be taken from your paycheck.
Bankruptcy is not right for everyone. It is complicated enough that you should not try to navigate it alone. Free legal help may be available.
Call 866-LEGLAID (866-534-5243) or virginialawhelp.org/get-legal-help to find a legal aid office in your area.
You can also search for a bankruptcy lawyer using the National Association of Consumer Advocates (NACA) tool. Under "area of practice," select "bankruptcy" from the drop-down menu.
This article is a general overview to help you understand the basics of bankruptcy so you feel more prepared when you speak with a lawyer. Every situation is different. Please talk to a lawyer about your specific case.
What can bankruptcy do right away?
The moment you file for bankruptcy, something called an "automatic stay" goes into effect. A stay means "stop."
This means bankruptcy immediately stops:
- Wage garnishment
- Foreclosure
- Collection calls and lawsuits
This happens the same day you file, before any of your debts are even resolved.
What can bankruptcy wipe out?
Bankruptcy can discharge (permanently erase) many types of debt, including credit card debt, medical bills, payday loans, and some tax debts.
Bankruptcy cannot wipe out everything. Child support, alimony, most student loans, and debts from fraud usually cannot be discharged. Rules are also more complex for people who run a business and people who owe unpaid wages to a former employee.
If you have student loans, you might be able to discharge your student loans in bankruptcy. Most people who would qualify for this, though, generally can instead discharge their student loans through a much simpler process, called the Total and Permanent Disability Discharge.
For more information specifically on student loan cancellation or forgiveness, visit studentloanborrowerassistance.org.
Is bankruptcy better than debt settlement?
Debt settlement companies heavily market to people struggling with debt. They may tell you to stop paying creditors and pay them a monthly fee instead. This can seriously damage your credit and leave you worse off.
Bankruptcy is different. It is a legal process with real court protections. It is always worth talking to a bankruptcy lawyer before signing up for any debt management program.
Debt settlement is usually a bad option even if bankruptcy is not a good option. Read more: Avoid Debt Settlement and Debt Elimination Companies.
Do I need a lawyer?
You can file without a lawyer. This is called filing "pro se." Filing without a lawyer is risky. Bankruptcy forms are complicated. One mistake can cost you property you were allowed to keep. It’s usually a bad idea to file without a lawyer.
If you are considering bankruptcy, consult with a lawyer first. Call 866-LEGLAID (866-534-5243) or visit virginialawhelp.org/get-legal-help to see if you qualify for free legal help.
You can also search for a bankruptcy lawyer using the National Association of Consumer Advocates (NACA) Find-an-lawyer tool. Under "area of practice," select "bankruptcy" from the drop-down menu.
What if I have to pay fees?
For Chapter 7, most lawyers ask for payment before filing your case.
For Chapter 13, you may be able to pay your lawyer over time as part of your repayment plan.
Could bankruptcy be right for me?
Bankruptcy might be worth looking into if all four of the following are true for you.
1. You are facing a current loss that only bankruptcy will fix
Examples of current problems that bankruptcy can help with:
- Money is being taken from your paycheck, and the amount goes beyond what the law protects. This is called wage garnishment.
- Money is being taken from your bank account, and those funds are not exempt or exceed the exempt amount. This is called bank account garnishment.
- You cannot get a job or housing because of your debts, AND the employer or landlord has told you that a bankruptcy would not also be a problem for them.
2. You have the kinds of debts that can be wiped out in bankruptcy
See the list in “What can bankruptcy wipe out?” above.
3. You are in a position to take advantage of the fresh start provided by bankruptcy
This means:
- Your budget will balance after your dischargeable debts are gone. Once you file a Chapter 7 bankruptcy, you cannot file another Chapter 7 for 8 years. So it is important to file at a time when you can truly start over. If your budget still does not balance after bankruptcy, you could go right back into debt. You might face garnishment again, and you would not be able to file for 8 years.
- You have health insurance coverage. This is especially important if you have ongoing health conditions or are expecting a baby. Once you file a Chapter 7 bankruptcy, you cannot file another Chapter 7 for 8 years. If you have ongoing medical expenses and no insurance or Medicaid, you could quickly build up new medical debt. You could end up facing garnishment again before you are able to file.
4. You have not filed bankruptcy recently
Waiting periods after a previous bankruptcy filing:
- Filed Chapter 7 before? You must wait 8 years before filing another Chapter 7.
- Filed Chapter 7 before? You must wait 4 years before filing a Chapter 13.
- Filed Chapter 13 before? You must wait 2 years before filing another Chapter 13.
- Filed Chapter 13 before and now want to file Chapter 7? The rules are more complex. Talk to a lawyer about the timing.
- Filed a different chapter? Talk to a lawyer to see when you can file again.
What if bankruptcy is not right for me?
Some people look into bankruptcy but find that another law already protects them. While you can still file for bankruptcy, it may not be your best or only option.
Here are some common situations:
- Creditors keep calling you. First, try sending an FDCPA (Fair Debt Collection Practices Act) do-not-contact letter. Read more: What Debt Collectors Can and Can't Do
- Money is being taken from your paycheck. First, read more about wage garnishment to check your options. If that has not stopped the problem, then this may be a reason to seriously consider bankruptcy.
- You have debt you could never realistically pay back. First, ask a lawyer whether you might be "collection proof." Collection proof means a creditor cannot legally take anything from you, because your income and belongings are protected by law. So you may only need to consider bankruptcy once you are no longer collection proof.
Read more: When Bankruptcy May Be the Wrong Solution
Remember: the best thing to do is talk to a lawyer about your situation.
- Call 866-LEGLAID (866-534-5243) or visit virginialawhelp.org/get-legal-help to see if you qualify for free legal aid.
- Search for a bankruptcy lawyer using the National Association of Consumer Advocates (NACA) tool: consumeradvocates.org/findanlawyer. Under "area of practice," select "bankruptcy" from the drop-down menu.
Should I file bankruptcy with my spouse?
If you are married, you and your spouse can file together or separately. Filing together is often a good choice. It can save on filing fees and lawyer costs. It also gives your whole family relief from debt and collection pressure at the same time.
Filing together generally makes the most sense if:
- You both have debts that can be wiped out, especially joint debts you share.
- You both trust each other to be fully honest about your income, property, and debts.
- You intend to stay together and don’t plan to get divorced anytime soon.
Talk to a bankruptcy lawyer about what makes sense for your situation.
Where do I start?
Pick the situation that fits you best:
I'm overwhelmed by debt and don't know where to begin
Learn more about the two main types of bankruptcy to figure out which one fits your situation.
Money is being taken out of my paycheck right now
Bankruptcy can stop garnishment the same day you file.
I've looked into my options and think Chapter 7 is right for me
Find out if you meet the income requirements.
I want to know what debts bankruptcy can wipe out
I'm worried about losing my home, car, or belongings
Virginia law protects many of the things you own.
Read: What Property Can I Keep if I File Chapter 7 in Virginia?