Money stress ranks as one of the worst forms of stress an adult has to deal with. Life is expensive, especially across the United States where some higher-end communities have an average income of over 400K per year. In and around these high-priced communities, middle-class Americans struggle financially, and typically live month to month, paycheck to paycheck.

Debt Relief: Here’s What You Don’t Know About Filing Bankruptcy

For those barely keeping their heads above rough financial waters, bankruptcy is usually the last resort. But, you might be surprised to know that over a half-million Americans filed for bankruptcy in 2020. Considering the Covid-19 pandemic, this number is also surprising because it had fallen from over 700,000 from the previous year, according to statistics from the Administrative Office of U.S. Courts.

Most Americans cringe when they hear the word “bankrupt.” This word denotes a complete financial defeat, and its ramifications are known to limit anyone from obtaining credit, loans, or those considering a home mortgage.

Regardless of your thoughts on bankruptcy, there are some interesting facts about filing that you might not be aware of.

Bankruptcy Comes in Two Forms

You might be familiar with “Chapter” Bankruptcy, but this is because it is classified under six main titles. Chapter 7 and Chapter 13 are the most common and both identify different components of bankruptcy.

Chapter 7

Chapter 7 bankruptcy is often referred to as “straight bankruptcy.” It’s also sometimes simply referred to as liquidation, generally because this filing usually requires a debtor to sell or liquidate any assets available in order to help pay the debt. Overall, Chapter 7 allows for a person to clear the slate and remove most debts.

Chapter 13

Chapter 13 bankruptcy is a more common type because this classification allows debtors to pay off their debt, generally over a period of 3 to 5 years, and doesn’t require or stipulate liquidation. Additionally, any remaining balance owed after the required repayment period is usually discharged by creditors.

All in all, Chapters 7, 9, 11, 12, 13, and 15 are the current legal forms of bankruptcy in U.S. courts. It is important to know the details of each form and to seek out legal counsel before deciding to file bankruptcy.

Some Debts are Not Affected by Bankruptcy

Most people go into filing bankruptcy completely unaware that it not only costs money to file, but they’re also under the impression that all debts are going to be discharged.

This is false.

Some debts simply cannot be discharged by filing bankruptcy, and the following is a shortlist of debt types that are usually not discharged:

  • Student Loans
  • Alimony
  • Child Support
  • Real Estate Liens
  • Taxes

You should also keep in mind that creditors can challenge your bankruptcy filing in court, and if they win, you still owe them money.

You Can Also Consider the Alternatives

Bankruptcy lowers your credit (temporarily) but you will be able to recover over time. This decision will also be reflected on your credit report for up to 10 years. This will affect your ability to secure loans, make large purchases, or even land a job in some cases.

Additionally, filing bankruptcy becomes part of public record, so anyone can dig up your bankruptcy filing if they want. Depending on your financial circumstances, this may be the only option you have for debt relief, especially if you have high debt. Just remember, you’ll be able to recover from this, and when you do, your debt will either be completely eliminated or drastically reduced, depending on which chapter you file. If your debt isn’t large enough for bankruptcy, you can consider these alternatives.


This is the best option when you still have good credit. If this is the case, obtaining a consolidation loan at a lower interest rate with a longer payoff timeline is the best option if you’re considering filing for bankruptcy with somewhat low debt.

Debt Renegotiation

Talking to creditors works wonders in most cases when you start falling behind on bills. Typically, you can speak to supervisors within a finance department to refinance or even set up a payment schedule that you can better afford.

This option works best when you’re in the beginning phase of falling behind on bills. But be cautious because if you cannot meet the new payment schedule, your future options will be much more limited.

Every American has bills, and unless you’re roughing it and living off the land, you’ll always have bills to pay throughout your life. While bankruptcy is the best option in some cases, it is best to go into the process prepared with knowledge of what it entails.