As you take on more personal debt, you put yourself at more financial risk of not being able to pay back that debt in the event of a job loss or other difficult life circumstances. Understanding the consequences of bankruptcy can help you make better decisions about how much financial risk to take on.

Please read p. 25 of the Personal Financial Readiness reading and answer the following true/false questions:

If I declare bankruptcy, my student loans will be erased. [ Select ]

Bankruptcy would not affect my ability to get a job because employers aren't allowed to request a credit report. [ Select ]

I have to meet certain requirements to be eligible for Chapter 7 bankruptcy. [ Select ]

A Chapter 13 bankruptcy is a plan to pay back a person's creditors, but usually at a lower amount than they initially owed. [ Select ]

Takeaways and comments:

Bankruptcy is an option of last resort. It doesn't erase all types of debts and it impacts your credit score for many years. Making solid financial decisions now will reduce the chance that you end up in bankruptcy.

Landlords can and often do request a credit report, so poor credit can impact your ability to get housing.

One common way that people end up in bankruptcy is over high medical bills that their insurance won't cover. If you have a full-time job, you will likely have health insurance through your employer, but if you are unemployed or self-employed, you usually have to buy your own health insurance. Some people are unable to afford good health insurance or any health insurance at all, which is a difficult situation to be in (and in this case you may qualify for Medicaid insurance through the state). But others choose not to be insured to save money (especially young, healthy people). If you are in a position to afford health insurance, but you choose not to buy it, think carefully about the possible consequences of that choice for your financial future. (Plans with high deductibles are usually the most affordable - they don't pay for most small things, but if you have a catastrophic health problem or accident, they will keep you from bankrupting yourself to get care.)