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Credit and debt

bankruptcy papers

Filing for bankruptcy

Shirley Anderson-Porisch, Extension Educator — Family Resource Management

Revised July 2016 by Sarah Butler, Extension Educator — Financial Empowerment; reviewed on same date by Sharon Powell, Extension Educator — Family Resiliency.

The decision to file bankruptcy should be someone's last resort. If you are unable to manage your debt with your current income, or are facing a legal garnishment of wages or foreclosure, then bankruptcy could be an option. It is recommended to meet with a certified nonprofit credit counselor to exhaust all options. Bankruptcy will cause damage to your credit report and score that will take time to rebuild.

Chapter 7 Bankruptcy (Straight Bankruptcy)

Chapter 7 bankruptcy is a court-supervised procedure where a trustee takes over assets of a debtor's estate. The trustee reduces assets to cash and makes payments to creditors. The person who owes money receives a court order, which is called a discharge. This releases them from having to pay some debts. Debts that cannot be discharged include most taxes, child support, alimony, most student loans, and court fines. The 2005 bankruptcy law requires an income means test to decide if a person's income qualifies them for Chapter 7.

Chapter 13 Bankruptcy (Reorganization)

Through Chapter 13 bankruptcy, creditors can be paid in an orderly manner if the person who owes money, the debtor, has sources of cash for payments. Chapter 13 allows the person to keep a valuable asset, such as a house. They can propose a three- to five-year repayment plan for their bills. Chapter 13 is also used by those who do not qualify for Chapter 7 under the income means test.

Filing Procedures

In addition to the means test, debtors must get credit counseling prior to filing. They also must take a money education course before they can get a bankruptcy discharge. Bankruptcy cases cannot be filed in state court;they must be filed in federal court. Minnesota has four bankruptcy courts, which are located in Fergus Falls, Duluth, Minneapolis, and St. Paul. More information on filing for bankruptcy is available from the United States Bankruptcy Court District of Minnesota.


National Consumer Law Center. (n.d.) Answers to Common Bankruptcy Questions. Boston, MA: National Consumer Law Center.

United States Bankruptcy Court — District of Minnesota. (n.d.) Website.

Related resources

Financial Decisions with Less — Get tips on keeping a roof overhead, bartering, meeting your insurance needs, and deciding which bills to pay first. Part of the Getting through tough times series.

BankruptcyNolo — Learn how bankruptcy works, what it can (and can't) do, and whether it might be a good option for you.

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