For people with an overwhelming amount of debt or those who are having trouble paying their bills every month, declaring bankruptcy can be the beginning of rebuilding their financial lives. But it’s also a complex, often misunderstood legal process that can have long-term effects on a person’s finances. Let’s review some common questions about bankruptcy.

Does bankruptcy eliminate all debt?

The two most common types of personal bankruptcy — Chapter 7 and Chapter 13 — are designed to eliminate or restructure unsecured debts. This includes credit card debt, medical and dental bills and payday loans.

Bankruptcy does not eliminate back taxes, student loans, court-ordered child support or alimony payments and certain other government fines or penalties.

Will bankruptcy ruin my credit?

A bankruptcy stays on your credit report for 7-10 years. Initially, it will be challenging to be approved for new credit at reasonable interest rates. Over time, however, the effects of the bankruptcy will lessen, especially if you make an effort to carefully rebuild your credit and practice positive financial habits.

Do you need a lawyer to file bankruptcy?

Although you are legally allowed to represent yourself when you file for bankruptcy (called filing “pro se”), it is not recommended. Working with an attorney who specializes in bankruptcy will help ensure you file correctly and understand all the pros and cons of filing.

If you file yourself, court employees and bankruptcy judges are prohibited by law from offering legal advice or instructions, even if they see obvious errors in your paperwork.

At the very least, you should initially consult with an attorney to determine the complexity of your bankruptcy filing. From there, you can make an informed decision about your representation. 

Will I lose my home or car in bankruptcy?

When declaring bankruptcy, your primary residence and vehicle are generally considered exempt assets, and you should be able to continue paying your mortgage and auto loan according to the established terms. However, if you are not current on your payment(s) for these loans, you may find yourself involved in a foreclosure of your home or repossession of your vehicle. Filing bankruptcy does not stop either of those processes.

Additionally, if you have a vacation home, rental property, or multiple vehicles — such as sports cars or collector cars — the court may order you to sell them and use the proceeds to pay off a portion of your debts.

The court may also require you to sell other non-essential assets such as fine art, stamp or coin collections, jewelry and designer clothing or accessories. You will work through all these details with your assigned trustee.

How many times can you file for bankruptcy?

There is no set limit to the number of times someone can file for bankruptcy. However, there are waiting periods for how long you must wait between filings. These depend on the type(s) of bankruptcy you file and the outcome of the case.

Although there isn’t a limit on how many times you can declare bankruptcy, if you find yourself needing to file more than once, you should address the underlying habits and money management issues that lead to unmanageable debt. Multiple bankruptcies will have long-lasting effects on your credit and make it hard to work toward future financial goals.

How long does the bankruptcy process take?

Generally, you’ll have several weeks of preparation before you file. Then, from filing to discharge, Chapter 7 bankruptcy will take from 3-6 months to complete.

Chapter 13 bankruptcy is a much longer process. It generally takes about 3 months from the time of filing until a restructured payment plan is approved. That plan will range from 3-5 years depending on how much you initially owe and the terms of the restructure. Once you have completed the payment plan, the final discharge process shouldn’t take more than eight weeks. 

Will I be able to get new credit after a bankruptcy?

One of the most common questions about bankruptcy involves obtaining new credit. It will initially be challenging, but not impossible, to secure new credit following a bankruptcy. Certain creditors capitalize on the eagerness of recent filers to obtain new credit and offer it at extremely high interest rates with very few benefits. But there are better options for rebuilding credit following a bankruptcy.

If you have a friend or family member with good credit, ask if they will add you as an authorized user on one or more of their accounts. This will give you the benefits of their good credit, even if you don’t use the card(s).

A secured credit card or credit builder loan are two more ways to begin rebuilding credit after bankruptcy. These financial products are specifically designed to help people build credit. They offer built-in safety nets that prevent borrowers from overextending themselves.

Rebuilding credit following a bankruptcy will take some time, effort and a renewed commitment to positive financial habits like following a budget and paying bills on time.