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Bankruptcy FAQ

Lyndon Ruhnke, P.C. June 18, 2024

Dealing with bankruptcy can be a scary and stressful experience, and it can also wreck your finances. I'm here to give you some strategic legal advice to help us find a solution that suits your needs.  

But first, you must understand what bankruptcy entails. Let's start by addressing some frequently asked questions about bankruptcy. 

What Is Bankruptcy? 

Bankruptcy is a legal process designed to help individuals and businesses eliminate or repay their debts under the protection of the federal bankruptcy court. When you file for bankruptcy, you get immediate relief from creditors as the court issues an "automatic stay" that halts collections, lawsuits, and foreclosures. 

What Are the Types of Bankruptcy? 

There are several types of bankruptcy, but the most common ones for individuals are Chapter 7 and Chapter 13. 

Chapter 7 Bankruptcy 

Also known as "liquidation bankruptcy," Chapter 7 involves selling your non-exempt assets to pay off as much of your debt as possible. The remaining unsecured debts are then discharged, giving you a fresh start. Chapter 7 is ideal for individuals with little to no income or assets and overwhelming debt. 

Chapter 13 Bankruptcy 

Chapter 13 allows you to reorganize your debts and pay them off over three to five years. This type of bankruptcy is best for individuals with a steady income who want to keep their assets but need some relief from their debts. Under Chapter 13, you can keep your home and car if you make timely payments on the repayment plan.  

Chapter 11 Bankruptcy 

This type of bankruptcy is primarily for businesses and allows for reorganization and continued operation while repaying debts. It can also be used by individuals who do not qualify for Chapter 7 or Chapter 13 because of their income or debt levels. It is a more complex and expensive process compared to the other two types of bankruptcy. 

The type of bankruptcy you choose depends on various factors, including your financial situation, the nature of your debts, and your long-term financial goals.  

What Are the Advantages and Disadvantages of Bankruptcy? 

Before deciding to file for bankruptcy, you must understand the advantages and disadvantages. 


  • Immediate relief from creditors: As soon as you file for bankruptcy, an automatic stay goes into effect, barring creditors from collecting on debts. 

  • Debt discharge: Certain kinds of debts may be fully discharged, giving you a fresh financial start and relieving you from the burden of those debts. 

  • Protection of essential assets: Depending on the type of bankruptcy, you may be able to keep key assets like your home and car, so you can maintain a certain level of stability. 

  • Structured repayment plans: In Chapter 13 bankruptcy, you can reorganize your debts and pay them off in a manageable way over time. 

  • Improved credit score over time: Filing for bankruptcy can eventually help you rebuild your credit score as you start anew and responsibly manage your finances. 

  • Legal protection: Filing for bankruptcy provides a legal framework within which you operate, ensuring fair treatment by all parties involved in the process. 


  • Negative impact on credit score: Filing for bankruptcy can significantly lower your credit score, making it more difficult to obtain loans or credit in the future. 

  • Public record: Bankruptcy filings are public records, meaning that your financial situation and the fact that you filed for bankruptcy can be accessed by others. 

  • Possible loss of assets: In Chapter 7 bankruptcy, you may have to sell non-exempt assets to pay off creditors, which could entail losing valuable property. 

  • Limited access to credit: You may find it challenging to get credit approval for several years after filing for bankruptcy, and any credit offered may come with higher interest rates. 

  • Not all debts are discharged: Certain debts, like student loans, alimony, and child support, are generally not discharged in bankruptcy, leaving you still responsible for these payments. 

How Does Bankruptcy Affect My Credit? 

One of the biggest concerns people have about filing for bankruptcy is how it will impact their credit score. Bankruptcy stays on your credit report for seven to ten years, which can make it difficult to obtain new credit, secure loans, or even buy a home. Specifically, Chapter 7 bankruptcy remains on your credit report for ten years, while Chapter 13 stays on for seven years from the filing date.  

However, the initial impact on your credit score may not be as severe if you are already behind on payments and have a low credit score. In fact, some people find that their credit score begins to improve shortly after filing for bankruptcy because their debt-to-income ratio improves, and they become more financially stable. 

Moreover, many creditors view post-bankruptcy borrowers favorably because they know you cannot file for bankruptcy again for several years, making you less of a credit risk. Secured credit cards and alternative lenders also offer options for rebuilding your credit sooner. 

After bankruptcy, it's essential to adopt responsible financial habits, such as making on-time payments, keeping credit card balances low, and avoiding unnecessary debt. Over time, these positive behaviors will help you rebuild your credit score, illustrating that bankruptcy is not the end of your financial journey but rather a step towards a new beginning. 

Am I Eligible for Bankruptcy? 

Eligibility depends on the type of bankruptcy you're filing: 

  • For Chapter 7, you must pass a means test, which compares your income to the median income in your state. If your income is below the median, you qualify. 

  • For Chapter 13, you must have a regular income, and your secured and unsecured debts must fall within certain limits. 

Credit Counseling Requirement 

Before you can file for either Chapter 7 or Chapter 13 bankruptcy, you must complete a credit counseling course from an approved agency. This course will provide you with alternatives to bankruptcy and help you evaluate your financial situation. 

Previous Bankruptcy Filings 

If you have previously filed for bankruptcy, specific time limits apply before you can file again. For Chapter 7, you must wait eight years from the date of your last Chapter 7 discharge. For Chapter 13, there is a two-year waiting period. 

Asset and Debt Limits for Chapter 13 

To qualify for Chapter 13, your unsecured debts must be less than $419,275, and your secured debts must be less than $1,257,850. These amounts are adjusted periodically to reflect changes in the consumer price index. 

Fraud Considerations 

If the court determines that you have attempted to defraud creditors by hiding assets or misrepresenting your financial situation, you may be deemed ineligible for bankruptcy. 

Income Stability for Chapter 13 

To qualify for Chapter 13, you need to demonstrate a stable and regular income. Under the repayment plan, you will be required to make consistent monthly payments. 

What Debts Are Dischargeable? 

Not all debts can be wiped out in bankruptcy. Here are some common categories: 

  • Dischargeable Debts: 

  • Credit card debt 

  • Medical bills 

  • Personal loans 

  • Utility bills 

  • Certain tax debts 

  • Non-Dischargeable Debts: 

  • Student loans (most cases) 

  • Alimony and child support 

  • Certain tax debts 

  • Debts for personal injury caused by driving under the influence 

What Do I Need to Know About Bankruptcy Laws in Oregon? 

In Oregon, you have the option to choose between federal and state exemptions when filing for bankruptcy. Key state exemptions include: 

  • Homestead exemption: You can protect up to $40,000 in equity in your primary residence ($50,000 for married couples). 

  • Vehicle exemption: You can exempt up to $3,000 of equity in one vehicle. 

  • Personal property: Oregon law allows you to exempt various personal property items, including clothing, household goods, and tools of the trade, up to specific limits. 

  • Wages: You can exempt up to 75% of your earned but unpaid wages or 40 times the federal minimum wage per week, whichever is greater. 

  • Pension and retirement accounts: Oregon law protects most tax-exempt retirement accounts, including IRAs and 401(k)s, up to certain limits. 

  • Public benefits: Benefits such as Social Security, unemployment compensation, and worker's compensation are generally exempt from creditors. 

  • Insurance benefits: Oregon law also protects life insurance proceeds or policies, as well as disability or health benefits. 

  • Wildcard exemption: Oregon provides a wildcard exemption that allows you to protect up to $400 in any property of your choice, which can be applied where you need it most. 

What Are Some Common Myths About Bankruptcy? 

Myth 1: You Will Lose Everything   

Reality: Thanks to exemptions, most people who file for bankruptcy can keep their essential possessions, including their home and car. 

Myth 2: Only Irresponsible People File for Bankruptcy   

Reality: Bankruptcy can happen to anyone due to unforeseen circumstances like medical emergencies, job loss, or divorce. 

Myth 3: Bankruptcy Will Ruin Your Financial Future   

Reality: While bankruptcy does affect your credit, it also offers a chance to rebuild your financial future free from overwhelming debt. 

Myth 4: Bankruptcy Discharges All Types of Debts   

Reality: Certain debts, such as student loans, alimony, and child support, generally remain your responsibility even after you file for bankruptcy. 

Myth 5: Spouses Have to File for Bankruptcy Together   

Reality: Spouses can file separately. Depending on the circumstances, it might be beneficial for only one spouse to file, leaving the other’s credit intact. 

Myth 6: You Can Only File for Bankruptcy Once   

Reality: While there are time restrictions between filings, you can file for bankruptcy more than once in your lifetime if you meet the eligibility requirements. 

Myth 7: Filing for Bankruptcy is a Sign of Failure   

Reality: Bankruptcy is a legal tool designed to offer a fresh start. Many successful individuals and businesses have used it as a stepping stone to rebuild their financial lives. 

Myth 8: You Can Hide Assets to Avoid Losing Them in Bankruptcy   

Reality: Attempting to hide assets in bankruptcy is illegal and can lead to severe penalties, including the dismissal of your case and potential criminal charges. 

Address Your Questions With a Bankruptcy Attorney in Portland, Oregon 

As an attorney with over 20 years of experience, I aim to simplify things for my clients by explaining legal matters in an approachable and understandable way. My goal is to provide you with peace of mind by handling your case quickly and professionally while keeping you updated and addressing any questions you may have. Reach out today to tackle your legal and financial challenges.