There are a lot of situations in life that can happen unexpectedly. A sudden and debilitating injury or illness, losing a job, adding to the family or even a death in the household. All of these can impact someone’s ability to pay his outstanding debts.

Declaring bankruptcy is a way to wipe the slate clean and start fresh. But it isn’t easy, and become even more difficult when the laws were changed in 2005.

The Two Filing Chapters

There are two chapters when filing for personal bankruptcy—Chapter 7 and Chapter 13.

Chapter 7 is more often used by those with high amounts of debt but lower income. This chapter is a liquidation of some of your assets (these are known as non-exempt assets). The money raised is then used by a trustee to repay a portion of your debts. Once they are repaid, all debts are considered forgiven.

Chapter 13 is a reorganization plan, meaning you continue to pay a portion of your debts over three to five years (depending on your financial situation when you file). After that, your remaining debt is forgiven.

How Do I Qualify

You will be expected to take a means test. This test is to determine if your median income is less than your state’s median income for the size of your family. If it is higher, you cannot choose Chapter 7, only Chapter 13.

There are also additional steps that you will be required to take. As this Federal Trade Commission post explains:

“If you plan to file for bankruptcy protection, you must get credit counseling from a government-approved organization within 180 days before you file. You also have to complete a debtor education course before your debts can be discharged.”

The counseling evaluates your financial situation, explores other avenues to bankruptcy and creates a budget that works for you.


It may seem like a good, and in many instances a necessary, solution, but there are long-term effects that you should consider first:

  • Credit rating—your bankruptcy can negatively impact your ability to get credit for up to 10 years after you filed for bankruptcy.
  • Debt Collectors—even though you are protected from collectors by federal law, once you have filed for bankruptcy, they will likely still continue to try and get you to pay.
  • Taking classes—you are also required to attend financial management classes
  • Tax Returns—the people owed money are entitled to a copy of your most recent tax return, too.

Navigating all of the bankruptcy laws can make filing complex, and you should consult an attorney to help make sense of them. It can be a costly process, too, especially when attorney and court fees are considered (both of which were increased in the 2005 law changes).

If you are considering bankruptcy and have an annuity, contact one of SenecaOne’s specialists to discuss if there are alternatives. At Your Trusted Source®, we are committed to helping our customers find the best possible solutions to better their financial situation.

This article is for informational purposes only and is not intended to constitute legal advice. Anyone considering filing for bankruptcy protection should consult with an attorney.

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