Question

Which of the following are true statements about filing bankruptcy?
a.
Bankruptcy erases all of your debt.
b.
It is possible to rebuild your credit after filing bankruptcy.
c.
There are exemptions that allow you to keep essentials.
d.
Bankruptcy stops aggressive action by creditors.

Answer 1

Correct answers: b, c, and d are true; a is false.

Brief explanations:
- a (false): Bankruptcy does not erase all debts. It can discharge many unsecured debts (credit cards, medical bills) but not certain obligations — commonly excepted are most student loans, child support and alimony, many recent tax debts, criminal fines, and debts caused by fraud. Secured debts (like car loans or mortgages) may survive unless you surrender the collateral or meet specific court procedures.
- b (true): You can rebuild credit after bankruptcy. By using secured credit cards, making on-time payments, and managing debt responsibly over time, many people improve their credit score within a few years.
- c (true): Exemptions let you keep certain essentials (home equity up to a limit, a car up to a limit, household goods, retirement accounts, tools of trade, etc.). Exemption rules vary by state and whether you use federal or state exemptions.
- d (true): Filing triggers an automatic stay that generally stops most collection activity (phone calls, repossession, lawsuits, wage garnishment) while the case proceeds, though there are some exceptions and creditors can ask the court to lift the stay.

If you’re considering bankruptcy, it’s a good idea to talk with a bankruptcy attorney or a reputable credit counselor to understand how the rules apply in your state and to your specific debts.