How bankruptcy works, how long on credit report, bankruptcy public records, bankruptcy types, bankruptcy fraud

Learn How Bankruptcy Works to Increase Chances of Long-Term Financial Bliss


How bankruptcy works will offer to shed light on why so many seemingly wealthy people go bankrupt and how you can prevent it. Some will be bankrupt permanently. Your records will be public within the federal court system after a case is over since the United States courts handle bankruptcies. It will also be reflected in a credit report.

Filing bankruptcy should always be a last resort. There are many better options, including steps to avoid bankruptcy with early planning of your finances for long-term financial bliss.

Unfortunately, some individuals and business will face a catastrophic event someday that leads to bankruptcy. How bankruptcy works is usually that it will offer an opportunity to regain financial footing sometime in the future.

Learn how to avoid bankruptcy in the United States by Lois Center Shabazz

First, it is imperative that individuals understand the bankruptcy definition, bankruptcy types, what happens as bankruptcy with a car loan, and bankruptcy with a mortgage.

For those who had a catastrophic event that was out of their control, bankruptcy can turn around finances. After completing bankruptcy proceedings, business owners may have a chance to start another business and rebuild their lives.

You can begin the lengthy process of building your credit after a court settlement.

✨✨BANKRUPTCY DEFINITION                    

The bankruptcy definition according to the oxford languages dictionary:
1. The state of being bankrupt.
“many businesses were facing bankruptcy”
Also; insolvency, liquidation, failure, financial ruin, ruination, or debt

2. the state of being completely lacking in a particular quality or value.
“the moral bankruptcy of treating good people with distrust”

When a debtor cannot pay some or all of their debts, creditors can force them into U.S. bankruptcy court.

Bankruptcy Should be Your Last Option


✨✨BANKRUPTCY TYPES              

Here I focus on financial bankruptcy, although moral and financial bankruptcy many times go hand in hand. There are three major bankruptcy types for businesses and individuals in the United States: Chapter 7, Chapter 11, and Chapter 13.

Chapter 7 – Liquidation – A type usually filed by businesses and individuals. Must meet low-income requirements, income limits depend on your location. The court system will delete unsecured debts, with exceptions. The exceptions are student loans, government taxes, child support, and alimony.

The bankruptcy courts will sell secured assets to pay off car loans and mortgages. The filing will slow a foreclosure, but not stop it.

Usually, it takes 4 to 6 months to complete a chapter 7 bankruptcy and stays on credit reports for 10 years.

Chapter 9 – Municipalities – Includes a payment plan for school districts, cities, and towns to reorganize and pay back the debts they owe.

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Chapter 11- Large Reorganization – A large business or corporation writes up an alternate plan to pay off debts while still operating as a business. Courts and creditors must approve the reorganization plan.

Chapter 13 – Repayment Plan-Reorganization – Individuals, including the self-employed, can file for chapter 13. There is no income requirement, but there is a threshold for debt balances.

You can pay back the debt over time with a court-authorized, repayment plan. If you accumulate assets with secured debt, you can keep them if you pay back the loans over time.

It can take 3 to 5 years to structure repayment, and the bankruptcy stays on a credit report for 7 years.

Chapter 15 – Used in Foreign Cases – Gives foreigners with debts the ability to use U.S. courts when they have international bankruptcy problems.


If bankruptcy with a car loan is filed, the car will most likely be lost. The car is collateral for the loan. You must return your car if there are no payment attempts made on the car.

Depending on the type of bankruptcy filed, you may or may not be able to keep your car.

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A physical home secures a mortgage. In Chapter 7 bankruptcy a mortgage includes the lender taking possession of the home. The home is usually sold to satisfy the unpaid home loan and missed payments. In Chapter 13, the homeowner may be able to keep the home, but this is rare.

Some homeowners feel their home belongs to them because they purchased it. One very confusing entity is the non-payment of home taxes. A local agency can cease your home for missed tax payments, paid-off or not.

The foreclosure process causes a lot of confusion for elderly people in the U.S. who lose a paid-off home to non-payment of taxes. This demonstrates that bankruptcy with a mortgage can be confusing with a paid-off mortgage.  Bankruptcy with a car loan is much different than bankruptcy with a mortgage.


Bankruptcy for student loans is very tricky and the process seems monumentally unfair. But, major corporations, small businesses, and everything in between can easily file bankruptcy if their business fails. But in most cases, student loan holders don’t have that option.

Bankruptcy for student loans does not fall into the same category if a student fails to get employment or gets underemployed, or sick and they can’t make payments, bankruptcy is rarely allowed. Student loan carriers can file for an income-based repayment plan. But be aware that interest will still be charged when loans are deferred, and your balance can increase greatly.  

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Dealing with the IRS is another tricky situation. There are many rules and a variety of situations about back taxes. It ultimately comes down to the decisions of the United States IRS agents.

If a tax debt is old enough there is a possibility it can be wiped clean. But the IRS must be notified of old tax debt, and communication should be strong, consistent, and ongoing with the IRS.

Get everything in writing and keep good records including dates, times, and names of IRS agents.

The most common financial problem celebrities have is nonpayment or underpayment of taxes. Many simply get bad advice and some fail to pay due to being overly busy. By the time they realize they are behind in taxes, the bill has ballooned.

Because the IRS adds monthly interest and penalties to an unpaid bill, the tax bill can balloon out of control.


Typically, bankruptcy will stay on your credit report for 7 to 10 years after the completion. Bankruptcy creates a bad mark on your credit report, this is an additional big problem for filers.

How bankruptcy works and why wealthy people and celebrities end up in the bankruptcy hole is due to the complications of making large amounts of money, not budgeting correctly, and allowing others to control their finances.

Bad credit brings a more difficult life. After a bankruptcy listing, the credit issued to a buyer will have a much higher interest rate.

So, not only will payments be higher, but the ability to get any credit at all, becomes much more difficult.


Bankruptcy public records can be accessed by something in the United States federal system called “pacer”. When the records are uploaded to “Pacer” they can be viewed by anyone with “Pacer” access.

Anyone who also wants to see bankruptcy public records can view credit reports with permission.

Bankruptcy public records are listed on credit reports when the bankruptcy is completed.


Don’t think about filing for bankruptcy protection if you do not qualify. Bankruptcy fraud is a serious crime.

If you file bankruptcy and lie about your debts, income, or assets you could land in a United States federal prison.

You commit bankruptcy fraud if you have a qualified income, or you try to hide your assets that are paid off.
Most bankruptcies happen due to a job loss of both parents at the same time, a failed business, long-term illness, a horrific accident, or other catastrophic events.

When bills get behind creditors can force the debtor into court, and it is upon the debtor to prove if they can pay off bills, or if they are bankrupt. The legal system will do a full investigation to verify that you qualify to file for bankruptcy.


How to avoid bankruptcy starts well in advance of making good financial decisions early. First, remember the bankruptcy definition and the bankruptcy types. Know how bankruptcy works so you can avoid it.

For instance: If you don’t understand the difficulties of small business, don’t start one. Work in a few businesses and study the process. Accumulate enough money to start and run a small business. It is not easy. There is a lot to learn.

When you choose a school, college, or university, choose it according to affordability and needs, not emotions. Your degree may look good on paper, but an overly expensive school could cost you misery for years with bad credit and difficult payments.

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The same goes for homes and cars, ask yourself if you can afford the home or car if you lose your job and depend on savings. Understand how bankruptcy with a car loan and bankruptcy with a mortgage works. I have known many who have tried to save a home when it came to bankruptcy with a mortgage, but it did not work.

Avoid the United States Bankruptcy Courts by Understanding the Bankruptcy Definition Early


Aside from making rational affordable decisions, save enough money to see you through difficult times, by living below your means and controlling spending.

Prioritize bill paying, by paying your taxes first, mortgage, car note, utilities, food, and savings.

If you see yourself getting into trouble, pull back on spending, and get a second job. If you get behind, you must suffer a little and sometimes a lot, to get back on track.  You won’t have to worry about bankruptcy fraud since you now know how bankruptcy works and the different bankruptcy types. Bankruptcy fraud can land you in prison.

Maintain full insurance for your car and home. If you have a small business keep all business insurances current, and in both cases keep your rainy-day fund current.

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Learn How Bankruptcy Works to Increase Chances of Long-Term Financial Bliss

10 Responses

  1. LisaLisa

    Well written! I’m glad there’s posts and information like this out. I would’ve loved to have learned this when I was younger.

  2. Kathy

    I would hate for things to get to the point of bankruptcy. I actually know someone who had to file for bankruptcy. You definitely want to avoid that if you can.

  3. Richelle Milar

    This is a really great and very informative post! Thanks for explaining this to us and thanks for sharing this wonderful article!

  4. Thank you for sharing an amazing and well written post that was filled with information’s that everyone needs to know. And have a better understanding of what bankruptcy is all about.

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