What is Bankruptcy?

By Arkansas Next on Friday, March 31, 2023

You graduate college and get your dream job. Hooray! You celebrate by buying your first car, and splurge a little on the make and model because you think, “I deserve it, right?” Then, you find the perfect little townhouse near your new job. Its reasonable mortgage payment and low cost to commute allow you the wiggle room to charge all new furniture on your credit card. You’re building credit, so what’s the harm? 

You’re doing great at work and getting recognized, so you decide to skip saving money each month (maybe once you get that big promotion you can afford to save). And surely, it’s better to pay down your student loans faster and use any spare funds for fun with friends. Being an adult, so far, is amazing!

Then, BAM! You get laid off–something about the company’s profits being down (you could barely hear anything after “We have to let you go.”). They cut you a small severance check (two month’s pay) and give their apologies. 

That’s how fast the wheels can come off the track. 

Suddenly, you're without income but still have your same bills (though, because of interest, the balances are actually increasing). The monthly savings you skipped sure would come in handy right about now. As the weeks and months pass, and you can’t find a job, you start skipping mortgage and credit card payments. Your car gets repossessed by the dealer. Can it get any worse

Finally, you’ve reached the point where you’re completely unable to make payments. You can try to sell your townhouse, but what if you can’t? 

If this keeps up, and you are unable to consolidate your debt or get help from your family, you may have to file for bankruptcy.

“When you’re young, it’s hard to think very far into the future, but you should really try,” said Lance Turner, editor of Arkansas Business. “The earlier you establish good financial habits, the better off you’ll be when it comes time to buy a car, find a home, get married, support a family and, ultimately, retire.”

“The biggest money mistake you can make is getting into too much debt early in life. Avoid it as best you can.” -Lance Turner, editor of Arkansas Business


When a person or business is unable to repay their debt, and they take legal measures to have their debt forgiven or restructured.

There were 5,493 bankruptcy filings in Arkansas in 2022 (Source: American Bankruptcy Institute)


  • Mediation with creditors
  • Credit counseling
  • Financial management courses
  • Non-exempt assets sold to cover debt
  • Credit score ruined (up to a 240-point drop!)


Chapter 7: Filer must surrender all non-exempt assets in exchange for debt forgiveness

Chapter 11: Used by companies to reorganize debt in order to keep operating 

Chapter 13: When an individual or company renegotiates the timeframe for paying off their debt


  • Job loss
  • Student Loans
  • Medical Bills
  • Divorce

“All of these can trigger a personal financial spiral. Job loss and divorce may be beyond your control, but you can certainly take charge of any debt you have, or, better yet, avoid taking on excessive debt altogether,” Turner said.


  • Student loans
  • Current and back taxes 
  • Child support/alimony obligations