Debt, Income and Credit In Bankruptcy

The average person filing for bankruptcy knows very little about the process. Given the detailed nature of debt relief through bankruptcy it is important to take the time to understand how the process actually affects aspects of your financial profile.


There are two categories of debt: secured and unsecured. Unsecured debts are those that are not secured against any property or asset as collateral. Credit cards, medical bills, utility bills, and most personal loans are unsecured debts. These are easily managed in a bankruptcy, often being eliminated with little repayment costs. However, not all unsecured debts are eligible for bankruptcy. Student loan debts, tax debts, and domestic support debts are typically not eligible for inclusion in a bankruptcy as they are considered “priority” debts.

Secured debts are those that are tied to an asset as collateral, like a mortgage or car loan. These debts are handled much differently than unsecured debts as they will require delinquent payments to be resolved in order to keep the property, but that isn’t to say you can’t still get help resolving them in bankruptcy. In fact, many people file for bankruptcy to prevent the asset from being repossessed or liquidated in foreclosure. Filing for bankruptcy will put a halt to these actions while you work to roll missed payments into an affordable repayment plan, often with no interest and the removal of penalty fees.

Income and Assets

One of the main fears people carry into the bankruptcy process is the thought of “losing everything”, when its actually the opposite. Filing for bankruptcy was developed as a way to protect your income, funds and most assets while debts are resolved. Outside of bankruptcy creditors can sue, garnish wages, and make attempts to seize assets. The bankruptcy process offers protection of your money and essential property through bankruptcy exemptions. Benefits, retirement plans, and most insurance funds are also included in the list of exemptions.


Credit damage is an unfortunate result of debt problems. High balances, missed payments, and delinquent account standings are all huge blows to your credit score. While a bankruptcy filing will be noted on your credit score for a few years to come, the debt discharge that comes with it can actually improve your credit. When your debts are discharged in a bankruptcy, the high balances, missed payment and delinquent account history is erased. Essentially, you are given a clean slate to write a new, positive credit history.