It can have long-term implications on your finances and credit score, as well as lasting emotional stress. However, if you feel like it’s your only option, it’s important to understand what happens when you declare bankruptcy and the consequences that come with it.
When you file for bankruptcy, it’s an official legal action that will show up on your credit report. Depending on the type of bankruptcy you file, your credit score can drop anywhere from 100-400 points. This means that it could take up to 10 years for your credit history to recover, and even longer if you incur additional late payments or delinquencies.
In addition, all of your creditors will be informed of your declaration of bankruptcy. This means that they could stop granting you credit, making it difficult to apply for loans, credit cards, rental properties, etc. In some cases, filings may also be reported to employers.
There are two common types of bankruptcy – Chapter 7 and Chapter 13. Chapter 7 bankruptcy involves liquidating assets to cover debts. You may be able to keep certain assets but you’ll need to pay off the remaining debt within 3 to 5 years. Chapter 13 bankruptcy allows you to keep your assets and reorganize your debts over a repayment plan. This plan typically lasts for 3 to 5 years and your creditors usually accept this arrangement.
The process of filing for bankruptcy consists of finding a lawyer who specializes in bankruptcy and preparing all required paperwork. You also need to take a credit counseling class and attend a formal meeting with your creditors. Once your filing is complete, the court will issue a discharge order which releases you from most of your unsecured debt, including credit card bills, medical bills, personal loans, etc.
Filing for bankruptcy can be a difficult decision. It’s important to consider the potential implications and consequences before filing, such as a negative impact on your credit score and the inability to get approved for loans or rent a property. Additionally, the process of filing includes several steps and requires a lawyer’s assistance.
Declaring bankruptcy is a serious matter that requires careful consideration before taking action. Those who choose to file must be aware of the consequences it can have on their credit history and future ability to access credit. Bankruptcy is an official legal action that involves the liquidation of assets or reorganization of debt over a repayment plan, depending on the type of bankruptcy filed. The process includes finding a lawyer, preparing paperwork, taking a credit counseling class, and attending a formal meeting with creditors. Ultimately, the court will issue a discharge order that relieves the filer from most of their unsecured debt.
This article was contributed on Jul 23, 2023