How Does Bankruptcy Affect You Financially?
In a critical financial crisis, bankruptcy may be the only solution for a life without debt. Bankruptcy has some positive consequences and some negative ones. Both during the case and for years afterward, bankruptcy will change your financial life.
Different types of bankruptcyMost people file bankruptcy under either Chapter 13 or Chapter 7. Chapter 13 requires a debtor to file a plan to monthly repay debts, or parts of debts, from current income over a period as long as five years.
Chapter 7 doesn't require a payment plan, but you might have to give up property so it can be sold to pay creditors. You can protect some assets through bankruptcy exemptions.
Some of the advantages of filing under Chapter 7 are that there is no limit on the amount of debt you might have and you don't have to repay the debt in a court-approved repayment plan.
Discharge from bankruptcyAt the end of your case, after completing the Chapter 13 payment plan or after filing the Chapter 7 case, you will get the bankruptcy discharge. Creditors cannot ever pursue you for repaying debts included in the bankruptcy.
An advantage of filing Chapter 7 bankruptcy is that you get a fresh start. Some debts survive bankruptcy, but you'll be informed about them before you even file your case. Another advantage is that in a typical case, the discharge of debt may occur in as little as three months. The bankruptcy court will close the case after the trustee distributes a debtor's property to unsecured creditors.
Bankruptcy and your creditChapter 13 bankruptcy will appear for seven years on your credit report and Chapter 7 bankruptcy for ten years. It can be difficult to get new credit, but a good amount of income over your expenses may be able to be able to re-establish credit. A checking account, a savings account, and agreeing to online statements also help.
How does bankruptcy impact your employment?An employer is prohibited by law to fire you just because you filed bankruptcy. Protection is limited when you are seeking new employment, especially for jobs in government or the financial services industry. If a potential employer runs a credit check on you in the hiring process, you may have to explain the bankruptcy.