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What Is Bankruptcy?
Bankruptcy is a legal process designed to provide debt relief to individuals, businesses, and other entities struggling with overwhelming debt.
This process allows debtors to reorganize their financial affairs and obtain a fresh start, while also providing protection from creditors.
While bankruptcy can be a complex and difficult process, it can also be a valuable tool for people and companies facing financial hardship.
Limitations of Bankruptcy
Bankruptcy can be an effective way to resolve overwhelming debt, but it has limitations.
For example, bankruptcy can be used to discharge many types of unsecured debt, stop collection efforts, allow debtors to keep some or all of their property, and provide a fresh start. However, bankruptcy cannot eliminate secured debts (a debt backed by collateral) unless the property is surrendered.
Additionally, it cannot eliminate certain debts such as child support, alimony, and tax debts, as well as debts from fraud or wrongdoing.
Debts that cannot be forgiven in bankruptcy:
- Child support and alimony payments
- Court fines and criminal restitution payments
- Debts incurred through fraud or intentional wrongdoing
- Most tax debts, including those owed to the Internal Revenue Service (IRS) or state taxing authorities
- Student loans, unless the debtor can prove undue hardship
Types of Bankruptcy
Bankruptcy cases can be filed under different parts of the U.S. Bankruptcy Code, including Chapter 7, Chapter 11, and Chapter 13.
Chapter 7 Bankruptcy
Chapter 7 bankruptcy is a liquidation process in which assets are sold to pay off debts, and unsecured debts are discharged. Chapter 7 bankruptcy is only available to people with a low income — generally below the median income for your household size in your state.
Chapter 7 is the most common type of bankruptcy.
Though assets can be sold to pay off debts, each state has a list of assets that are not allowed to be sold. Some states allow you to choose between the state or federal exemptions list.
Chapter 11 Bankruptcy
Chapter 11 bankruptcy is a reorganization process — usually for businesses — to restructure and continue operating while repaying creditors.
The court will work with the company to restructure debts and assets while leaving the business to operate as normal.
The exception to this is when the business has been forced to declare bankruptcy due to fraud or illegal behavior. In that case, the court will appoint a trustee to manage the business through the bankruptcy.
Many well-known companies have declared Chapter 11 bankruptcy and continued to operate throughout the process. These include:
- General Motors
- K-Mart
- Marvel Entertainment
Individuals can file for Chapter 11 bankruptcy as well, but this is rare. It is usually only allowed for people who don’t qualify for Chapters 7 or 13 but meet the requirements to file under Chapter 11.
Chapter 13 Bankruptcy
Chapter 13 bankruptcy is a repayment plan for individuals to pay off debts over three to five years while keeping their assets. In order to qualify, you must have enough disposable income to afford the repayment plan and your debt must be below the federal limit.
Currently, the limits are just below $400,000 for unsecured debts — debts without collateral — and a bit over $1 million for secured debts.
To learn which type of bankruptcy applies to your situation, it may be helpful to speak with a bankruptcy lawyer.
How Bankruptcy Works
Bankruptcy allows individuals and businesses to address their financial struggles and debts.
The process usually involves a court proceeding in which the debtor’s financial situation is assessed and a plan is put in place to address any debts.
Stops Creditors From Taking Negative Action
One of the significant benefits of filing for bankruptcy is a debtor protection called the automatic stay.
The automatic stay is a court order that stops creditors from taking negative actions against a debtor, such as foreclosing on a home, repossessing a car, or garnishing wages.
It provides debtors with temporary relief from collection efforts and can give them time to reorganize their finances.
Affects Your Credit Score
Bankruptcy can have a negative impact on a debtor’s credit score.
A bankruptcy filing can remain on a credit report for up to 10 years, and it can make it difficult to obtain credit in the future.
However, many people who file for bankruptcy already have poor credit scores, and bankruptcy can be a way to start rebuilding credit by demonstrating a commitment to repaying debts.
Minimizes Personal Liability
Bankruptcy can minimize personal liability by discharging or eliminating many types of unsecured debt. This means the debtor is no longer responsible for paying off those debts.
Additionally, bankruptcy can provide debtors with a fresh start by allowing them to reorganize their finances and get a handle on their debt.
However, not all debts can be discharged through bankruptcy, and some personal liability may still exist after the bankruptcy process is complete.
Who Can Declare Bankruptcy?
Individuals and businesses facing overwhelming debt may be eligible for bankruptcy.
This includes people who are struggling with:
- Credit card debt
- Medical bills
- Personal loans
- Other unsecured debts
In addition, people may be eligible to file a case in bankruptcy court if they are facing foreclosure or repossession of assets such as a car.
However, eligibility for bankruptcy usually depends on several factors, including the type of bankruptcy being filed, the amount of debt owed, and the debtor’s income.
You may qualify for bankruptcy if you:
- As an individual or business, owe more than you can pay
- Have a financial situation that makes it difficult for you to pay your debts
- Have received credit counseling from an approved agency within 180 days of filing for bankruptcy
- Have completed a means test to determine eligibility for Chapter 7 bankruptcy
- Are not registered as having attempted bankruptcy fraud
Eligibility requirements may vary depending on the type of bankruptcy being filed and the individual’s specific financial situation, which may lead to certain exemptions.
Consulting with a bankruptcy attorney can help determine if you are eligible to file for bankruptcy and provide you with the best possible legal advice for moving forward with your situation.

Hear From the Experts on Navigating Bankruptcy
Our team at Lawfirm.com would never advise listening to only one voice on such a complicated and impactful topic as bankruptcy, so we’ve asked experts to weigh in. These professionals have agreed to share their perspectives through some pressing questions on the topic.
- What should people know about filing for bankruptcy — either for themselves or a business — and the impact it can have in the future?
- What are some alternatives to filing for bankruptcy that people should explore?
- Who needs a lawyer when filing for bankruptcy? Is there any circumstance where an individual, family, or business could handle bankruptcy without professional guidance?
- What advice would you give to anyone struggling financially and considering bankruptcy?

Seth Connell
Owner of Financial Coach Seth Connell, LLC
View Answers- What should people know about filing for bankruptcy — either for themselves or a business — and the impact it can have in the future?
Bankruptcy can have profound personal and professional consequences. While the protection of the automatic stay can be appealing, there can be other short- and long-term collateral consequences for the unwary.
A Chapter 7 bankruptcy remains on your credit report for 10 years. A Chapter 13 bankruptcy remains on your credit report for 7 years. The former is a liquidation of non-exempted assets to pay creditors, with the remaining balance being discharged. The latter is a payment plan over 3 or 5 years, with a discharge of any remaining balance at the end of that period.
Having a bankruptcy on your record can make it difficult to qualify for a mortgage, especially in the first few years after filing. Any other lines of credit you apply for will also likely have significantly higher interest rates to compensate for the perceived risk.
There may also be professional consequences. For example, those with a security clearance may lose that access. If you cannot access classified information for your job, you may be unemployed. This could also apply to professions such as lawyers. The board of professional responsibility may perceive a high risk of misappropriating client funds if the lawyer is in personal financial trouble.
If you are a partner or member of a business, the operating agreement may have a provision that causes dissociation upon filing bankruptcy. This is to protect the business from being caught up in the bankruptcy proceedings, because your interest in the business will likely become a part of the bankruptcy estate. It is especially critical to consult with a bankruptcy attorney if you have any part in operating a business to determine if this is possible.
- What are some alternatives to filing for bankruptcy that people should explore?
Before running to bankruptcy, try to negotiate with creditors. Sometimes they will understand and be willing to work with you. There can be deferment plans available for temporary relief that will help you get caught up on other bills.
You could also consider doing a balance transfer to another account. This doesn’t solve the problem ultimately, but it can be a strategic move to put out a few fires for a while. But it is generally unwise to transition unsecured debt, such as credit cards and personal loans, into secured debt.
While there may be some equity in your house you could use, the transfer of risk goes from a drawn-out court process for unsecured debts versus an out-of-court foreclosure proceeding. Secured debt is more favorable for the creditor, so stick with keeping unsecured debts as unsecured if you have the ability to do so.
- Who needs a lawyer when filing for bankruptcy? Is there any circumstance where an individual, family, or business could handle bankruptcy without professional guidance?
When dealing with the legal system, it really is advisable to engage with an attorney licensed to practice law in your jurisdiction. Bankruptcy is an exceedingly complicated process, with many forms and deadlines. If those requirements are not met properly, it could jeopardize the protections a bankruptcy offers if that is a necessary choice.
I don’t have any circumstances I would recommend someone handle a bankruptcy on their own. When dealing with an incredibly difficult choice like this, it is worth it to have someone there as an advocate and a counselor. Bankruptcy attorneys generally work legal fees into the payment plan for a Chapter 13 bankruptcy. For a Chapter 7, the advice is usually to pause all debt payments and save up the cash to pay the retainer, which can be between $750 on the low end up to around $2,000.
- What advice would you give to anyone struggling financially and considering bankruptcy?
If bankruptcy is on the table for you, it’s not the end of the world. Lots of people have had to do this before because of difficult life circumstances. The purpose of this system is to allow debtors a chance at a fresh start.
The main thing to focus on isn’t what’s happened in the past. It’s what to do moving forward. Do some self-reflection. Ask what the decisions were that led you to where you are now. Sometimes life throws unexpected catastrophes our way and we have no way to prepare for them.
But we often make decisions that lead ourselves into hard financial situations. And we need to take ownership of the decisions we have made, good or bad. From there, we can resolve to do things differently in the future. We can’t change the past, but we can be determined to learn from it and try something new moving forward.
Before filing for bankruptcy, consider reaching out to a financial counselor or coach. These professionals help people make a good budget, pay off their debts, build savings, and adopt the mentalities that lead to financial freedom.There is usually an investment to make with these professionals. However, the return on the investment can be many times over if you really engage with that person and submit yourself to a new process. And the overall investment is likely less than what working with a bankruptcy attorney would be. Not to mention that there is no adverse impact on your credit report. You will likely see significant improvement by doing what the counselor or coach recommends.
Ultimately, personal finance is mostly about the behaviors that we do on a daily basis. If we change those and truly believe we can overcome our financial difficulties, we have taken the first steps to living in financial freedom and conquering the things that hold us back.



Owner of Financial Coach Seth Connell, LLC
I have counseled individuals and families in personal finance since 2018. My practice consists of helping people with their budgets, debt-free plans, savings goals, and the mentalities and habits that lead to wealth. By helping my clients understand various concepts and topics in the financial world, they become equipped to make good decisions with their money. My average client saves $1,700 a month with the practices they adopt from my coaching. I am also an attorney licensed in the State of Tennessee and practice estate planning and small business law.



Dr. Yibing Du
Clinical Assistant Professor at The University of Texas at Arlington
View Answers- What should people know about filing for bankruptcy — either for themselves or a business — and the impact it can have in the future?
A bankruptcy petition, often the last resort to debt relief, should be avoided or alternatives considered at any cost. Bankruptcy essentially is a reallocation of the rights and obligations between the debtors and creditors beyond the debt covenants. Bankruptcy laws either protect the creditor or the debtor or both. However, whose interests will be safeguarded during the bankruptcy period varies case by case. In general, the debtors risk losing control of their financial assets, real properties, privacies, and reputations and the ability to regain financing resources in the future. Moreover, not all debts can be forgiven under bankruptcy laws.
People may think filing for bankruptcy will solve their financial problems once and for all, but the cost of going bankrupt is high, if not the highest. For individuals, Chapter 13 filing may be an alternative to the Chapter 7 petition, and provides better protection to the debtors than Chapter 7. For a business that has high financial leverage and continues to generate good business cash flows, Chapter 11 filing could benefit both the debtor and creditors. However, the cost of filing Chapter 11 is a significant factor in the decision-making.
- What are some alternatives to filing for bankruptcy that people should explore?
Filing for bankruptcy is a lengthy, time-consuming, and costly process. People and businesses may consider some alternatives:
1. Negotiate with the creditors for a new repayment plan, a new debt to replace the old debts, or a bridge loan to release repayment pressure temporarily.
2. Discuss a debt consolidation plan with several creditors or new creditors.
3. An equity business facing bankruptcy pressure should consider the possibility of a debt-equity swapping plan.
4. Individuals should consider Chapter 13 filing as an alternative to Chapter 11 filing.
5. Look into asset management companies specializing in troubled assets as some provide better solutions and financial resources. - Who needs a lawyer when filing for bankruptcy? Is there any circumstance where an individual, family, or business could handle bankruptcy without professional guidance?
Filing for bankruptcy requires specialized professional knowledge and skills. It is recommended that everyone hire a professional for this process.
- What advice would you give to anyone struggling financially and considering bankruptcy?
Bankruptcy is not a cure-all for financial hardships or a solution for everyone. The cost of going through this process is very high. As a result, planning your finances well ahead is the key. One simple rule of thumb is using your financial leverage wisely. In plain words, this means not taking on an amount of debt that is beyond what you can manage.



Clinical Assistant Professor at The University of Texas at Arlington
My main research interests are in fixed-income investments, financial risk management, credit risk, market risk, and quantitative risk analysis and modeling. My teaching interests include graduate and undergraduate courses in corporate finance, financial markets, investments, financial derivatives, portfolio management and security analysis, financial applications, and financial mathematics.
Dr. Anthony Na’ayem
Instructor of Business Law at Missouri State University
View Answers- What should people know about filing for bankruptcy — either for themselves or a business — and the impact it can have in the future?
Bankruptcy has two primary objectives: It protects debtors by giving them a “fresh start” without worrying about the creditors’ claims being held over their heads. Additionally, it works to protect creditors by ensuring that their interests are protected and they are treated equitably among other creditors competing for a debtor’s assets. Common misconceptions about bankruptcy are that you must be insolvent to declare bankruptcy and that bankruptcy is a bad thing. Both of these thoughts are false.
It must also be clarified that bankruptcy is a federal matter, not a state matter. While state laws may have some bearing on a bankruptcy estate, bankruptcy itself is governed by federal law (Title 11 of the U.S. Code, or the “U.S. Bankruptcy Code”) and is adjudicated in the federal courts (the U.S. Bankruptcy Courts, which are units of the U.S. Districts Courts and are provided for under Article I of the U.S. Constitution and the legislative acts of Congress given their constitutional power to establish these courts).
Under the U.S. Bankruptcy Code, different types of bankruptcy relief are available to the debtor. One factor is determining the debtor’s status — whether they are an individual or married couple, their profession in some circumstances, or whether they are a business entity (and what type of business) or a municipality. Another factor is ascertaining what the parties wish to achieve — whether for the debtor to sell what are known as nonexempt assets to pay their creditors (which is called “liquidation”), to retain ownership of their assets (and continue business operations) while they negotiate with creditors (which is called “reorganization”), or to establish a repayment plan where the debtor makes installment payments to repay their creditors. Depending on such, different chapters of the Bankruptcy Code might apply.
Also, depending on the type of bankruptcy, they can either be voluntary (on the part of the debtor) or involuntary (meaning that creditors could potentially “force” a debtor into bankruptcy). The amount of debt involved may have some impact on the types of bankruptcy employed as well.
While bankruptcy will potentially adversely affect the debtor’s credit, like any other debtor situation, it is possible to recover over the long run with due diligence and hard work. The impact will typically lessen over time as debt is reduced or discharged.
- What are some alternatives to filing for bankruptcy that people should explore?
First and foremost, before it comes to bankruptcy, communicate with the creditors. It is important to remember that all the creditor wants is to get paid what is due to them. Sometimes they might be willing to work things out one on one to lower or spread out payments or even lower or waive interest as long as they get what they are due.
While creditors can employ a number of tools to protect their rights such as taking a security interest in collateral, attaching liens, and executing garnishments, various other types of legal instrumentalities are available to them. But debtors’ rights are protected, too. It is not a one-sided game. Several types of agreements exist where a debtor and their creditors can agree to accept a lesser amount due in full satisfaction of the debt (which are called creditors’ composition agreements) or other negotiated or settled agreements. In many cases, an agreement to accept at least something instead of nothing and to discharge the rest is favorable to the alternative.
Otherwise, depending on availability, debtors might have access to various debt management plans, debt settlement programs, and debt consolidation loans through third-party assistance. It is extremely important to shop around and find the solution that best fits that debtor’s situation. Also, it is a “buyer beware” world out there. Not all solutions or providers are the same, and some can actually worsen a debtor’s situation. Therefore, it is important that a debtor asks around and does some investigation into these programs.
Perhaps the best place to start down this path is to find a reputable consumer credit counseling agency that can assist (and sometimes even advocate for the debtor). In fact, in order to file for bankruptcy, it is now required that a debtor receive credit counseling from an approved nonprofit agency beforehand.
- Who needs a lawyer when filing for bankruptcy? Is there any circumstance where an individual, family, or business could handle bankruptcy without professional guidance?
As with any legal matter, it is highly suggested that the debtor consult competent legal counsel before pursuing bankruptcy. That qualified professional can best explain the alternatives to bankruptcy, counsel their client on the proper form of bankruptcy to pursue and verify the accuracy of the petitions and schedules that must be filed. These are also the minimum requirements of counsel for consumer debtors.
A qualified, licensed attorney will advocate on the debtor’s behalf and should know the rules and what they are doing. They are simply in a better position to do so. They should also know what to do should creditors continue to try to collect against the debtor after bankruptcy has been initiated.
Remember that bankruptcy is a federal matter in the federal courts. Even appearing pro se (representing oneself) in municipal or small claims court can end in catastrophe. There are many complex rules and procedures that apply in the courts and deadlines and requirements that must be met. The federal bankruptcy courts, which have distinct rules and procedures, are certainly no exception. - What advice would you give to anyone struggling financially and considering bankruptcy?
Do your homework. Check out all the possibilities first to satisfy debts, consult a reputable credit counseling agency, and hire competent legal counsel should it come to bankruptcy.
Instructor of Business Law at Missouri State University
Anthony D. Na’ayem is a full-time Instructor of Business Law at Missouri State University, teaching classes in the Legal Environment of Business and in Debtor and Creditor Rights and Remedies. Dr. Na’ayem earned his Juris Doctorate (J.D.) and Certificate in Public Policy and Regulatory Studies from the University of Tulsa College of Law, graduating with honors. Dr. Na’ayem is an alumnus of Missouri State University, where he graduated with honors and earned his Bachelor of Science (B.S.) in Management, having majored in Administrative Management with a minor in Legal Studies.
Prior to joining the faculty at Missouri State University, Dr. Na’ayem served as an adjunct instructor teaching law, business, and political science at other college campuses. Dr. Na’ayem has also served as a compliance officer in public accounting as well as real estate development and syndication and in county governance and tax administration. Dr. Na’ayem has also engaged in client, case, and firm management for law firms in the areas of corporate, business, and tax law; business transactions and contracts; property law; and insurance defense, creditor rights, and civil litigation throughout his professional experience.
Dr. Na’ayem previously attained the designation as a Leading Professional in Ethics + Compliance (LPEC) and is a life member of the International Association of Risk and Compliance Professionals in which he is a Certified Risk and Compliance Management Professional (CRCMP). He is also currently serving as a member of the Society for Human Resource Management in which he is a Certified Professional (SHRM-CP). Dr. Na’ayem has presented on numerous occasions and conducted workshops concerning business formation and legal compliance. He has been a guest columnist for professional publications and has written several articles on the subjects of business formation, ethics, and compliance.



Nancy Rapoport
UNLV Distinguished Prof. & Garman Turner Gordon Prof. of Law, UNLV
View Answers- What should people know about filing for bankruptcy — either for themselves or a business — and the impact it can have in the future?
The good thing about bankruptcy is the breathing room it gives debtors via the automatic stay of 11 USC 362 (though there are exceptions to the automatic stay) and the fact that litigation will move to a single bankruptcy court. Depending on the chapter, there are different effects of filing. Chapter 7 provides a faster discharge but appoints a trustee to handle the bankruptcy estate. Chapter 11 (mostly for businesses) leaves the debtor in charge but is significantly more expensive. Chapter 13 lets the debtor keep more assets in general, but the discharge happens after the plan is completed (about 5 years). People seeking bankruptcy protection probably don’t have to worry about their credit rating because it’s already indicating distress.
- What are some alternatives to filing for bankruptcy that people should explore?
First, negotiate with a creditor for an extension. If someone has a problem with only one creditor, this can be effective. But don’t do it yourself — use a lawyer. There are also state law assignments for the benefit of creditors, but again, that’s not something for a person to do without a lawyer.
- Who needs a lawyer when filing for bankruptcy? Is there any circumstance where an individual, family, or business could handle bankruptcy without professional guidance?
EVERYONE needs a lawyer. There are so many complexities that filing on one’s own without legal help is a very, very bad idea.
- What advice would you give to anyone struggling financially and considering bankruptcy?
First off, don’t despair. Bankruptcy law is designed to provide a fresh start and is often better than being hounded by creditors and losing sleep. Second, look for a board-certified bankruptcy attorney if at all possible.



UNLV Distinguished Prof. & Garman Turner Gordon Prof. of Law, UNLV
Nancy B. Rapoport is a UNLV Distinguished Professor, the Garman Turner Gordon Professor of Law at the William S. Boyd School of Law, University of Nevada, Las Vegas, and an Affiliate Professor of Business Law and Ethics in the Lee Business School at UNLV. After receiving her B.A., summa cum laude, from Rice University in 1982 and her J.D. from Stanford Law School in 1985, she clerked for the Honorable Joseph T. Sneed III on the United States Court of Appeals for the Ninth Circuit and then practiced law (primarily bankruptcy law) with Morrison & Foerster in San Francisco from 1986-1991. She started her academic career at The* Ohio State University College of Law in 1991, and she moved from Assistant Professor to Associate Professor with tenure in 1995 to Associate Dean for Student Affairs (1996) and Professor (1998) (just as she left Ohio State to become Dean and Professor of Law at the University of Nebraska College of Law). She served as Dean of the University of Nebraska College of Law from 1998-2000. She then served as Dean and Professor of Law at the University of Houston Law Center from July 2000-May 2006 and as Professor of Law from June 2006-June 2007, when she left to join the faculty at Boyd. She served as Interim Dean of Boyd from 2012-2013, as Senior Advisor to the President of UNLV from 2014-2015, as Acting Executive Vice President & Provost from 2015-2016, as Acting Senior Vice President for Finance and Business (for July and August 2017), and as Special Counsel to the President from May 2016-June 2018. In 2022, UNLV’s Alumni Association named her the Outstanding Faculty Member of the Year.
Drew Blackston
Financial Advisor at Pearl Wealth Group
View Answers- What advice would you give to anyone struggling financially and considering bankruptcy?
If you’re struggling financially and considering bankruptcy, there are some steps you can take to improve your financial situation before resorting to bankruptcy.
Paying down debt: Before considering bankruptcy, it’s important to explore other options for managing your debt. One approach is to focus on paying down high-interest debts first, as this will save you money in the long run. You can also consider consolidating your debts into a single loan with a lower interest rate. If you’re struggling to keep up with payments, try reaching out to your creditors to see if they’re willing to negotiate a payment plan or lower your interest rates.
Budgeting: Creating a budget can help you take control of your finances and identify areas where you can cut back on expenses. Start by listing all of your sources of income and fixed expenses, such as rent or mortgage payments, utilities, and car payments. Then, track your variable expenses, such as groceries, entertainment, and dining out. Look for areas where you can cut back like by reducing your cable bill or dining out less frequently. Stick to your budget as closely as possible and adjust it as needed.
Learning to save for emergencies: Unexpected expenses can be a major source of financial stress. Learning to save for emergencies can help you prepare for the unexpected and avoid resorting to high-interest loans or credit cards. Aim to save at least three to six months’ worth of living expenses in an emergency fund. You can start by setting aside a small amount each month and gradually increasing your savings over time.
By focusing on paying down debt, creating a budget, and learning to save for emergencies, you can take steps to improve your financial situation and avoid bankruptcy. However, if you’ve explored all of your options and still feel that bankruptcy is the best choice for you, it’s important to work with an experienced bankruptcy attorney who can guide you through the process and protect your rights.
Financial Advisor at Pearl Wealth Group
Drew is a registered Investment Adviser Representative and has earned the certifications of Certified Retirement Counselor®, Registered Financial Consultant®, licensed insurance agent and completed the Financial Planning Education Program through Kaplan University.
Originally from Kentucky, Drew moved to Florida for college and has worked in the financial services industry since graduating from the University of South Florida in 2009 with a bachelor’s degree in business administration. He began his career focusing on market research, analysis and financial strategies and gained valuable experience in asset preservation and retirement planning.
Drew, along with his wife, Valerie, founded Pearl Wealth Group with a desire to help individuals and families with their retirement and financial dreams. Drew hosts the “Your Financial EKG™” weekly podcast and YouTube channel and has created and trademarked his proprietary retirement process called the “Retirement EKG™.” Drew has been published in Kiplinger Investment Magazine, featured in Forbes and been a financial guest on Spectrum News.
Drew resides in Tampa with his wife, two daughters, one son and two lovable dogs. Away from the office, he enjoys spending time with his family and taking them to the many beaches in the Tampa Bay area. Drew is also a huge fan of baseball and the Kentucky Wildcats.



Dr. Dima Leshchinskii
Professor of Finance at Menlo College
View Answers- What advice would you give to anyone struggling financially and considering bankruptcy?
If a person is struggling financially, the first step should be identifying what is causing financial problems, and the second is working out a plan.
Therefore, I would start by understanding how the cash flow looks — the major outflows (student debt, mortgage, rent, medical bills) and where the money is coming from. On the Internet, many free tools help people with that.
Once the details of the financial situation and the overall picture become clear, the next step will be to develop a plan to improve the financial situation. I would have short-term and long-term aspects of the plan. In the short-term: What costs can be reduced? What payments can be postponed without incurring significant financial penalties? What additional source of money (loan, mortgage refinancing) can be used in the upcoming weeks?
Next, look at the long-term picture. Maybe the current situation (cars owned, etc.) is not affordable. Maybe the current job won’t significantly increase your future income, and it is time to reconsider.
Among the options to consider, bankruptcy might be a possibility, too, but it requires a consultation with a bankruptcy specialist who would explain its advantages and disadvantages.



Anthony Rondinelli
Professor of Business Administration at Springfield Technical Community College
View Answers- What should people know about filing for bankruptcy — either for themselves or a business — and the impact it can have in the future?
People should first be aware that there are several different alternatives when filing for bankruptcy, so the process is not nearly as easy as it may seem. Depending on the situation, debtors may file under Chapters 7, 11, or 13 of the Bankruptcy Code. As this is not usually an easy determination for the debtor to make on their own, it is strongly advisable to consult legal counsel before filing for bankruptcy with the courts. Additionally, consultation with the debtor’s accountant/CPA is strongly advisable beforehand to ensure that all assets, liabilities, and/or other financial holdings of the debtor have been properly accounted for prior to these proceedings. Also of note, any debtor contemplating filing for bankruptcy should be fully aware that doing so may have significant adverse future implications with regard to their ability to obtain loans, own a credit card, and/or maintain an acceptable credit score, so this should be seen as a ‘last resort’ within the debt resolution process.
- What are some alternatives to filing for bankruptcy that people should explore?
Asset liquidation, debt consolidation, and debt renegotiation (as to the terms of a loan or credit card agreement) are all viable and preferable alternatives to filing for bankruptcy with the courts. Debtors are encouraged to explore all other possibilities that may exist prior to filing for bankruptcy, and this should only occur if all other avenues have been exhausted first.
- What advice would you give to anyone struggling financially and considering bankruptcy?
My suggestion would be to first discuss these issues with the personal advisors whom the debtor trusts most (including an attorney, accountant, and/or financial advisor). This should be done to brainstorm ways of alleviating the immediate strain of debt on the consumer while finding a viable, long-term solution to these issues that won’t jeopardize their entire financial future. In many cases, solutions to these issues can be worked out before entering into the long, arduous process of filing for bankruptcy, saving the debtor a great deal of time, money, and effort.



Professor of Business Administration at Springfield Technical Community College
Tenured, full professor, accountant/financial services professional & practice owner with over 25 years of combined business experience and leadership in the areas of college teaching, academic advising, research & student mentoring, private & public accounting & tax preparation, corporate finance, group & individual insurance product underwriting, personnel and process management, product marketing & sales management, and ‘Six-Sigma’ quality process management. Experience teaching a variety of introductory & advanced business/accounting courses at the community college, undergraduate and graduate levels (both day & evening programs), and in traditional (brick & mortar), online, independent study, hybrid, and accelerated (one-day weekend) program formats.



Daren Blonski
Managing Principal of Sonoma Wealth Advisors
View Answers- What should people know about filing for bankruptcy — either for themselves or a business — and the impact it can have in the future?
Filing for bankruptcy can have significant consequences for both individuals and businesses. It can impact your credit score, making it harder to access credit and loans in the future. It can also affect your ability to rent a home, obtain a job, or even start a business. It is important to understand that bankruptcy is not a quick fix and should only be considered as a last resort after exploring all other options.
- What are some alternatives to filing for bankruptcy that people should explore?
Some alternatives to filing for bankruptcy include debt consolidation, negotiating with creditors for lower payments, and seeking credit counseling. It is important to work with a financial planner or credit counselor to explore all your options and find the best solution for your unique situation.
- Who needs a lawyer when filing for bankruptcy? Is there any circumstance where an individual, family, or business could handle bankruptcy without professional guidance?
Filing for bankruptcy can be complex, and it is generally advisable to seek the guidance of a qualified bankruptcy lawyer. They can provide legal advice, help you navigate the bankruptcy process, and ensure that you are taking the necessary steps to protect your assets and interests. In some cases, individuals or small businesses with relatively simple financial situations may be able to handle bankruptcy without a lawyer, but this is not recommended.
- What advice would you give to anyone struggling financially and considering bankruptcy?
My advice to anyone struggling financially and considering bankruptcy is to seek the guidance of a Certified Financial Planner or credit counselor before making any decisions. They can help you explore all your options and develop a plan to manage your debt and improve your financial situation. It is important to remember that bankruptcy is not the only option and should only be considered as a last resort. By taking action early and seeking help, you may be able to avoid bankruptcy and improve your financial health over time.



Managing Principal of Sonoma Wealth Advisors
Daren Blonski is the co-founder and Managing Principal with Sonoma Wealth Advisors. Sonoma Wealth Advisors is an independent Registered Investment Advisor and a leading financial advising firm. He is a Certified Financial Planner (TM). He specializes in helping entrepreneurs and professionals with developing a plan for retirement.



L.J. Jones
Founder of Developing Financial LLC
View Answers- What should people know about filing for bankruptcy — either for themselves or a business — and the impact it can have in the future?
When an individual files for bankruptcy, the immediate impact is that their current debt payments may be paused until the resolution of their case. They will also notice a dramatic drop in their credit score. As they go through the bankruptcy process, they may have to sell their car, home, and personal possessions. In the future, they will find it hard to obtain credit or loans, and if they can get a loan, the interest rate will likely be higher than for other people. Bankruptcies stay on your record for 7-10 years, which may affect your ability to work at certain jobs. There is also emotional stress associated with filing for bankruptcy. While filing for bankruptcy can provide momentary relief, in the future, it can have long-lasting consequences for both your personal and financial life.
- What are some alternatives to filing for bankruptcy that people should explore?
An alternative to filing for bankruptcy is negotiating with your creditors. Possible negotiating points include paying a reduced amount, pausing payments for a period of time, and/or extending the repayment timeline. Some creditors may even change the terms of the loan, such as the interest rate on the remaining debt. Creditors may not receive anything in bankruptcy, so they have a possible incentive to be open to negotiations.
Working with a credit counselor can also be helpful. These professionals can help you understand your options and work with you to create a plan to manage your debts in the future.
- Who needs a lawyer when filing for bankruptcy? Is there any circumstance where an individual, family, or business could handle bankruptcy without professional guidance?
Working with a lawyer when filing for bankruptcy is almost always advisable. They can advise someone on whether bankruptcy is the best option, what someone’s bankruptcy options are, and how bankruptcy will affect them. They can also file the necessary forms on their client’s behalf. In addition, people who cannot afford an attorney may qualify for free services.
- What advice would you give to anyone struggling financially and considering bankruptcy?
Bankruptcy is a significant financial decision that should be considered as a last resort. Even if you are in a financially difficult situation, try to avoid bankruptcy if possible. Consult with a knowledgeable lawyer and/or financial professional like a credit counselor to help you understand all possible outcomes. Then create a plan for going forward.



Founder of Developing Financial LLC
L.J. Jones is the founder of Developing Financial. While his wife was in law school, L.J. had numerous conversations with her classmates about finances after law school. These lawyers wanted to learn more about student loan repayment, investing, saving, and even retirement. From these discussions, L.J. saw that law school does a great job of teaching lawyers the skills they need to succeed at their jobs, but doesn’t teach lawyers how to manage the financial rewards of their careers. So he created a financial planning process at his firm specifically to help young lawyers establish a financial foundation, identify goals that will lead to a more fulfilling life, and create a plan to financially accomplish these goals. L.J. works with young lawyers whether they are working at a firm, as in-house counsel, or at a public or non-profit organization. By leading with personal finance education, L.J. hopes to help all lawyers live a richer life.
Is Bankruptcy Common in the United States?
Recent bankruptcy statistics indicate a decrease in bankruptcy filings in the U.S.
According to the Administrative Office of the U.S. Courts, there were 413,616 bankruptcy filings in 2021, which is a 24% decrease from 2020.
A decline has also been observed in business bankruptcy filings, which fell 33.7% from 21,655 to 14,347.
The decrease in bankruptcy filings was consistent across all bankruptcy types:
- Chapter 7 bankruptcy, which is the most common type of bankruptcy, accounting for 69% of filings, dropped from 378,953 in 2020 to 288,327 in 2021.
- Chapter 13 bankruptcy, which allows for debt repayment plans, dropped to 120,002 filings from 156,377 in 2020.
- Chapter 11 bankruptcy, typically used for large or small business reorganization, also decreased from 8,333 to 4,836 in 2020.
When to Consider Filing Bankruptcy
Bankruptcy may be an option to consider if you are unable to pay your bills, facing wage or bank account garnishment, or at risk of losing your home due to missed mortgage payments.
Additionally, if you are overwhelmed by significant amounts of unsecured debt or facing legal action, filing for bankruptcy debt relief may be the best option.
However, it is a serious decision that should not be taken lightly.
Consulting with a bankruptcy attorney can help you determine if bankruptcy is the best course of action for your financial situation.
An experienced bankruptcy lawyer can guide you through the bankruptcy process and help you take advantage of options that may be available to help manage your debt.
Reasons People File for Bankruptcy
Bankruptcy is a tool that can help individuals in financial distress get back on their feet, but it should always be a last-resort option.
Here are some reasons people file for bankruptcy.
Job Troubles
Job loss, reduction in income, or unemployment can make it challenging for a person to keep up with their bills and debts and lead to financial struggles.
High Medical Bills
Medical expenses can be a major financial burden, especially if a person lacks adequate health insurance coverage.
Serious injuries or illnesses can lead to significant medical bills, and some people may turn to bankruptcy to manage their medical debt.
Divorce
Divorce can be a stressful and emotional time, and it can also be a financial burden.
Divorce proceedings can result in significant legal fees and expenses, property division, and a change in household income that may make it challenging to manage debt.
Emergencies & Life Changes
Unexpected emergencies or life changes, such as natural disasters, accidents, or the death of a family member, can have a significant impact on a person’s finances.
These events can lead to unexpected expenses and a loss of income, making it difficult to keep up with bills and debts.
Lack of Financial Skills
Lack of financial skills or knowledge can also lead to financial difficulties. Poor budgeting habits, overspending, and accumulating debt can all contribute to financial distress.
Filing for bankruptcy may be an option for people who struggle with managing their finances and debts.
How to File for Bankruptcy
Filing for bankruptcy can be a complex process. Understanding the steps involved can help ensure that the process goes smoothly.
The basic steps of filing for bankruptcy are outlined below.
1. Gather Financial Records & Statements
The first step in filing for bankruptcy is to gather all of your financial records and statements.
This includes bank statements, tax returns, and information on your debts and assets.
This information is necessary to complete the bankruptcy forms, so it’s important to have everything organized and readily available.
2. Seek Credit Counseling
Before filing for bankruptcy, you must complete credit counseling with an approved agency.
This counseling session helps you understand your financial situation and explore alternatives to bankruptcy.
Credit counseling must be completed within 180 days prior to filing for bankruptcy.
3. Reach out to a Bankruptcy Lawyer
Filing for bankruptcy can be a complicated process, and it’s recommended that individuals seek the advice of a bankruptcy lawyer.
A bankruptcy lawyer can help people understand their options, prepare the necessary paperwork, and navigate the bankruptcy process.
4. File Your Bankruptcy Claim
Once you’ve completed credit counseling and have gathered your financial records, you can file your bankruptcy claim.
This involves filling out the necessary bankruptcy forms and submitting them to the bankruptcy court.
There are different types of bankruptcy, but a lawyer can help you understand which type is appropriate for your situation.
5. Attend Meeting With Creditors
After filing for bankruptcy, you must attend a meeting with your lenders and creditors.
This meeting is typically held within a few weeks of filing for bankruptcy and is an opportunity for creditors to ask questions about your financial situation.
It’s important to attend this meeting as it’s a requirement of the bankruptcy process.
Pros vs. Cons of Bankruptcy
While bankruptcy can offer a fresh start to those who are struggling with debt, it’s important to understand both the pros and cons of filing for bankruptcy before making the decision to file.
3 Pros of Filing for Bankruptcy
Here are some of the greatest advantages of filing for bankruptcy.
1. Elimination of Debts
One of the biggest benefits of filing for bankruptcy is that it can eliminate certain types of debts, such as credit card debt, medical bills, and personal loans.
This can provide you with a fresh start and help you move forward financially.
2. Protection From Creditors
Filing for bankruptcy also provides people with protection from creditors. Once the bankruptcy process has begun, creditors are prohibited from pursuing collection activities, such as making harassing phone calls or garnishing wages.
3. Automatic Stay
An automatic stay goes into effect when you file for bankruptcy. This means that creditors cannot start or continue to take action against you or your property.
3 Cons of Filing for Bankruptcy
Here are some of the drawbacks of filing for bankruptcy.
1. Negative Impact on Credit
Filing for bankruptcy will have a negative impact on your credit score. This can make it more difficult to obtain credit in the future and may result in higher interest rates.
2. Public Record
Bankruptcy filings are public records, which means that anyone can access information about your bankruptcy case.
3. Loss of Assets
Depending on the type of bankruptcy, you may be required to give up certain assets, such as a home or car. This can be a difficult decision to make and can have a significant impact on your quality of life.
What to Look for in a Bankruptcy Law Firm
When choosing a bankruptcy law firm, consider several factors. Look for a firm with a proven track record and experience in handling bankruptcy cases.
Choose a law firm that specializes in bankruptcy law and has a good reputation.
It’s important to receive personal attention and good communication from the law firm, so choose a firm that values those qualities.
Overall, finding the right bankruptcy law firm can provide you with the guidance and support you need to navigate the complex process of filing for bankruptcy.
Find Legal Help With Filing Bankruptcy Today
If you’re considering filing for bankruptcy, seek legal help as soon as possible.
An experienced bankruptcy law firm can help guide you through the bankruptcy process and ensure that your rights are protected.
Don’t wait until your financial situation gets worse. Reach out to a bankruptcy law firm today to schedule a consultation and learn more about your options.
With the right legal help, you can take steps toward financial stability and a fresh start.
FAQs About Bankruptcy
What are some alternatives to filing bankruptcy?
There are several alternatives to filing for bankruptcy that you can consider if you’re struggling with debt.
Debt consolidation, debt settlement, credit counseling programs, and restructuring or refinancing debt are some options you can explore.
What happens when you declare bankruptcy?
When you file a bankruptcy petition, a court-appointed trustee will review your financial situation, assets, and debts to determine what can be used to repay your creditors.
Depending on the type of bankruptcy you file for, your assets may be liquidated to pay off your debts or you may be put on a payment plan to repay your debts over time.
After your debts are resolved or discharged, you’ll be able to start fresh with a clean financial slate.
How long does bankruptcy last?
The length of a bankruptcy case can vary depending on the type of bankruptcy code filed:
- Chapter 7 bankruptcy typically lasts about 3-6 months
- Chapter 13 bankruptcy can last from 3-5 years
- Chapter 11 bankruptcy, which is typically filed by businesses, can last for several years
A bankruptcy will remain on your credit report for a period of 7-10 years, depending on the type of bankruptcy filed.
Can you get a credit card after going bankrupt?
Yes, you can get a credit card after going bankrupt. However, it can be more difficult to qualify for a credit card, and you may be subject to higher interest rates and fees.
Many credit card companies offer secured credit cards, which require a security deposit, as a way to rebuild credit after bankruptcy.
Still, you should use credit responsibly and make payments on time in order to rebuild your credit score.
Can bankruptcy affect my spouse?
Bankruptcy can affect a spouse in several ways, depending on the state where the couple lives and the type of bankruptcy.
If only one spouse files for bankruptcy, the non-filing spouse’s credit score may be impacted if they have joint debts or accounts with the filing spouse.
Additionally, in community property states, the non-filing spouse’s assets and income may be considered as part of the filing spouse’s bankruptcy case.
Does bankruptcy affect my job?
In most cases, bankruptcy should not affect your current job. Employers are prohibited from discriminating against employees or potential hires based solely on bankruptcy filings.
Can bankruptcy affect my retirement plan?
In general, retirement plans such as 401(k)s, pensions, and IRAs are protected in bankruptcy proceedings. These funds are typically exempt from being used to pay off creditors.