Bankruptcy—Can It Save You From Financial Ruin?

By Avital Medoff
Maryland Newsline
Thursday, Dec. 11, 2008

If the recent economic downturn has you scrambling for financial security, filing for bankruptcy may seem like the best way out of money trouble. Test your knowledge of the bankruptcy process by selecting the statements that best answer the questions below. When you’re done, click "see the answers."

1. What types of bankruptcy are available to individuals in debt?

Chapters 7, 11 and 13
Only Chapters 11 and 13
Only Chapter 7
Chapters 72 and 73

2. How would your ability to take out loans be affected by having a bankruptcy filing on your credit report?

Lenders will be less likely to approve loan requests.
Lenders will be more likely to approve loan requests.
There will be no noticeable effect.
Lenders will only approve loan requests made after April 15 of each year.

3. How long would a Chapter 7 bankruptcy filing remain on your credit report?

5 years
7 years
10 years
The number of years it took to accumulate your debt.

4. Which of the following is not true about Chapter 7 bankruptcy?

The courts charge $300 in filing and administrative fees.
You must provide the courts with a certificate of credit counseling at the time of the filing.
A married couple declaring bankruptcy must file jointly.
Filing under Chapter 7 bankruptcy will likely result in the loss of property.

Chapter 7 cases are processed more quickly than Chapter 11 and Chapter 13 cases.
The trustee selects which assets will be liquidated, so you don’t have to worry about making a mistake.
Relief from debt is more immediate than it would be under other chapters.
You can use all income earned after filing for your own purposes, instead of putting a portion toward debt repayment.

6. Although individual filers tend to prefer Chapter 7, there are elements of Chapter 13 that make it a more attractive choice. Why might you prefer filing for personal bankruptcy under Chapter 13?

You can promise to repay creditors over a period of years, even if they object to not being repaid with a lump sum.
Chapter 13 is more effective in enabling you to make an immediate "fresh start."
Chapter 13 is the only type of bankruptcy under which an individual can file more than once.
At just under $100, the processing fees are a fraction of what it costs to file under Chapter 7.

7. Your spouse is deciding between filing for bankruptcy as an individual and filing for bankruptcy as a married couple. Which of the following factors does not need to be considered in this decision?

Whether your assets and your spouse’s assets are owned jointly or separately.
Whether the debt was incurred as a married couple or as an individual.
Your involvement in a separate bankruptcy case.
Whether you filed taxes jointly or separately on the previous year’s tax returns.

8. Your salary was cut by 5 percent, and now you’re having trouble making your monthly car loan payments. You’re worried that falling behind on the loan could eventually lead to bankruptcy. What’s the best way to come up with additional funds?

Borrow from your traditional IRA fund—your retirement is decades away, so it won’t make much of a difference.
Borrow from your parents, since you know they won’t charge interest.
Take a part-time job on the weekends.
Withdraw the money from the 12-month CD (certificate of deposit) you bought three months ago.

Copyright © 2008 University of Maryland Philip Merrill College of Journalism

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