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A discharge in Chapter 7 or Chapter 13 bankruptcy provides powerful debt relief by wiping out your unsecured debt. This includes credit card debt, medical bills, many judgments against you and most taxes that are over four years old. You can also use bankruptcy to walk away from contracts and secured debts such as oppressive auto loans and leases. Bankruptcy cannot get rid of: student loan debt (except in special circumstances, see below); debts incurred by fraud (such as lying on a credit application; domestic support obligations (such as child support or alimony); debts for personal injury caused by driving under the influence; court fines and most restitution orders. However, it can make it easier to comply with these obligations by wiping out other unsecured debt and relieving financial pressure so you can repay the debts that will not go away with bankruptcy.

No. Your 401(k), pension plan, deferred compensation plan, IRA and ROTH IRA are protected in bankruptcy. You will not be required to use any of your retirement funds to pay your debts in a bankruptcy proceeding. In fact, the biggest mistake people make is liquidating retirement funds to repay debt that could be included in bankruptcy without getting a professional opinion first.

If bankruptcy is your most cost-effective debt relief option, you absolutely should NOT liquidate your retirement account to pay your debt. Your 401(k) is safe in bankruptcy, but once you pull the money out it becomes fair game for creditors and is counted as taxable income by the IRS. If you keep your money in your retirement account, you will have it after bankruptcy. If bankruptcy is not your most cost-effective option, you may wish to liquidate your retirement account to settle your debt. Because you can typically settle debt for approximately 50% of the balance owed, settling debt is preferable to paying your debt in full.

Using credit is the key to rebuilding credit after bankruptcy. If you have debts that are not discharged in bankruptcy such as student loans, paying these on time will help you rebuild your credit. You may also wish to get a credit card as soon as possible after filing bankruptcy. Using the card and paying the balance in full each month does wonders for your credit. If you are unable to obtain a credit card initially after bankruptcy, you may wish to purchase a secured credit card (where you supply the bank with an amount of money and draw down from that), which will report to the credit bureaus.

A co-signor is 100% liable for the loan if you do not repay it, either by default or by discharging the debt in bankruptcy. This means that the creditor will seek to collect the entire amount of the debt from the co-signor. There are certain protections for co-signors in Chapter 13 bankruptcy that an attorney can advise you on. Often, though, the co-signor will need to continue paying the debt or look into their own bankruptcy options.