No one likes to talk about bankruptcy, but if you're considering bankruptcy, you really need to know the facts.

There are two types of personal bankruptcy, Chapter 7 and Chapter 13. They each offer different protections depending on individual circumstances. In general, Chapter 7 is total liquidation of unprotected assets to pay creditors. And Chapter 13 allows for individuals to create payment plans with creditors usually over the span of three to five years.

There are also a few myths surrounding the filing of bankruptcy that you should be aware of. The most common myth is, people who file bankruptcy are irresponsible. Actually, some of the most common reasons people filed bankruptcy are medical expenses, job loss and divorce. Most people who file for bankruptcy aren't gaming the system; rather, they've encountered very serious financial problems and need to get out from underneath the unrecoverable debt.

Another common myth is, bankruptcy permanently ruins your credit. Most creditors will be cautious when extending credit to filers of bankruptcy, but there will still be secured credit card offers available. And these can be the first step in rebuilding your credit. If you choose this option, make sure you pay your credit card debt on time and demonstrate creditworthiness.

Then there is the myth that filing for bankruptcy is inexpensive or even free. Filing fees alone for bankruptcy costs hundreds of dollars. And if a lawyer is retained to help you with the bankruptcy, your costs can climb to more than $1,000.

Finally, there is a myth that bankruptcy is a cure-all. Bankruptcy is not a short-term solution, and it can't discharge all debts owed. For instance, child support, certain taxes or most student loans still have to be paid.

Before deciding to file for bankruptcy, contact your local branch and schedule a financial counseling session offered at no charge to members. It's best to have a good grasp on your entire financial situation before making such a big decision.

LGFCU is an equal housing opportunity lender and federally insured by NCUA.


The situations described in this video are for informational purposes only and meant to provide examples of the products and services LGFCU offers to its members, which may be subject to approval. Contact a financial advisor or legal or tax professional for additional guidance.

The individuals presented in this video are members and employees of LGFCU and receive no added compensation for their appearance.

LGFCU is an equal housing opportunity lender and federally insured by NCUA.