What Happens When You File For Bankruptcy?
Bankruptcy has sometimes been viewed as a disgraceful last resort despite it being a legal mechanism used when individuals or businesses are unable to meet financial obligations.
Despite the fact that bankruptcies, according to Reuters, surged by 18% in 2023 and look to continue surging in 2024, bankruptcy’s intricacies and social stigma render it one of the least comprehended debt-relief options.
Understanding the process and its implications is crucial for anyone considering this option. As America’s leading provider for debt relief solutions, we aim to shed light on what happens when you file for bankruptcy, including its impact on your property, credit, employment, and more.
KEY TAKEAWAYS:
- Bankruptcy is a legal process that provides relief to individuals and businesses struggling with overwhelming debt.
- Different types of bankruptcy, such as Chapter 7 and Chapter 13, offer different solutions for debtors.
- Bankruptcy can have significant consequences on your credit, property, and employment prospects.
What Is Bankruptcy?
Bankruptcy is a legal process that allows individuals and businesses to seek relief from their debts when they are unable to repay them.
It is governed by federal law and involves a court-supervised process that aims to provide a fresh financial start for debtors while ensuring fair treatment for creditors.
Bankruptcy can result from various circumstances beyond one’s control including:
- Divorce – Legal fees and financial fallout from divorce can lead to bankruptcy.
- Medical bills – A significant percentage of bankruptcies are linked to medical expenses.
- Poor financial decisions – Excessive credit card usage due to budgeting issues is a common cause.
- Job loss – Without savings, losing a job can lead to overwhelming debt.
- Unexpected emergencies – Events like theft, natural disasters, or property loss can create financial crises for those living on tight budgets.
What Happens When Declaring Bankruptcy?
When you declare bankruptcy, you initiate a legal process that involves disclosing your financial information, assets, liabilities, income, and expenses to the bankruptcy court.
Individuals have the option to represent themselves in bankruptcy court or hire a bankruptcy lawyer to guide them through the process.
The court appoints a trustee to oversee your case and may require you to undergo credit counseling and attend a creditor’s meeting as mandated by Section 341 of the Bankruptcy Code.
Depending on the type of bankruptcy you file, certain debts may be discharged, restructured, or repaid through a court-approved plan.
After filing for bankruptcy, creditors are legally prohibited from contacting you or pursuing legal action against you, and any existing garnishments are halted.
Will I Lose My Property?
When considering bankruptcy, one of the primary concerns for individuals is whether they will lose their property.
Here’s what you need to know about property retention in Chapter 7 and Chapter 13 bankruptcy:
Chapter 7 Bankruptcy
Chapter 7 bankruptcy, also known as liquidation bankruptcy, involves the sale of non-exempt assets to repay creditors.
However, the good news is that many states offer exemptions that protect essential assets necessary for your basic living needs.
These exemptions typically include your primary residence, vehicle, personal belongings, and retirement accounts up to certain limits.
It’s essential to consult with a bankruptcy attorney in your state to understand which exemptions apply to your situation and ensure that you can retain the assets you need to maintain a stable living environment.
Chapter 13 Bankruptcy
Unlike Chapter 7 bankruptcy, Chapter 13 bankruptcy allows you to keep all of your property while repaying your debts through a court-approved repayment plan.
In a Chapter 13 repayment plan, you make monthly payments to a trustee over a period of three to five years.
These payments are used to repay all or a portion of your debts according to a structured plan approved by the court.
As long as you adhere to the terms of the repayment plan and continue to make timely payments, you can retain ownership of your property, including your home and vehicle.
Frequently Asked Questions (FAQs) About Bankruptcy
How Does Declaring Bankruptcy Affect My Credit?
Declaring bankruptcy can have a significant impact on your credit score and credit history. A bankruptcy filing will remain on your credit report for up to 10 years, making it challenging to obtain new credit or loans.
However, over time, with responsible financial management, you can rebuild your credit score.
Are Bankruptcy Filings Publicly Available?
Yes, bankruptcy filings are a matter of public record and can be accessed by anyone who wishes to view them. However, this does not necessarily mean that your friends, family, or employers will find out about your bankruptcy unless they actively search for this information.
Will Bankruptcy Affect My Current Job Or Future Employment?
While bankruptcy itself cannot legally be used as a basis for discrimination in employment decisions, some employers may view it negatively.
Certain industries or positions that require financial responsibility or trustworthiness may conduct background checks that include bankruptcy filings. It’s essential to be prepared to address any concerns employers may have about your financial history.
How Many Times Can I File For Bankruptcy?
The law doesn’t impose a limit on the number of times you can file for bankruptcy. However, there are time constraints between filings.
Does Filing For Bankruptcy Get Me Out Of All My Debts?
Bankruptcy doesn’t absolve all financial obligations. For example, it doesn’t eliminate the following:
- Federal student loans (unless specific criteria are met)
- Court-ordered alimony and child support
- Debts acquired after filing for bankruptcy
- Certain debts from the six months preceding bankruptcy filing
- Some tax obligations, such as tax liens
- Loans acquired through fraudulent means
- Debts stemming from personal injury while driving under the influence
Monitor Your Credit During The Bankruptcy Process
During and after the bankruptcy process, it’s crucial to monitor your credit report regularly to ensure that it accurately reflects the status of your debts.
You are entitled to a free credit report from each of the three major credit bureaus annually, which you can access at AnnualCreditReport.com.
Final Thoughts On What Happens When You File for Bankruptcy
Filing for bankruptcy is a significant decision that can have long-lasting consequences on your financial life.
While it offers relief from overwhelming debt, it also comes with challenges, including potential impacts on your credit, property, and employment. That’s why it’s imperative to weigh the pros and cons carefully and explore all available options before proceeding with bankruptcy.
At Americor, we understand the importance of managing your finances wisely.
As America’s trusted source for debt relief solutions, we aim to empower you with financial knowledge that can lead to informed decisions, whether it’s about savings, investments, or managing debt.
If your debt has become unmanageable and you have difficulty making your debt payments each month, then you should consider a free consultation call with one of our certified Debt Consultants, who can provide personalized advice tailored to your specific needs.
By taking proactive steps today, you can put an end to your financial stress and work towards a brighter financial future.
Remember, there is always hope for debt relief, and our team of experienced professionals are ready to guide you on your journey to regaining control of your finances.
For more information on Americor’s debt relief services, contact us today to see how we can help you eliminate your debts, and get on the fast-track to becoming completely debt-free!
