How To File Bankruptcy
People in financial distress are often advised to consider filing bankruptcy as a last resort option. Although bankruptcy can help you get your finances in order and may even allow you to start over, it can also have negative consequences that could affect your possessions and make credit approval difficult for many years.
These are the things you should know before you file.
What happens when you declare bankruptcy?
Bankruptcy is an option for those who are in financial trouble. You can either pay off a portion of your debts slowly or completely.
Declaring bankruptcy will grant you an automatic stay. This is a stop to creditors trying to collect your debt. They cannot take money out of your bank account, garnish your wages, or pursue any other assets.
The court will then give you time to meet with your creditors and work out the next steps.
What if I lose my property?
Whether you file chapter 7 or chapter 13, bankruptcy, what happens to your property will depend on which option you choose. You can find out which bankruptcy option is best for you by reading “Bankruptcy: Chapter 7, vs. Chapter 13”. Based on the route you choose, here’s what you can expect.
Chapter 7 bankruptcy is also known as liquidation bankruptcy. This is because you will need to sell some assets to pay at least a portion.
However, some assets are exempted from liquidation by state law. This includes your retirement accounts, home, and car. To find out which property you are allowed to keep, consult a bankruptcy lawyer in your state.
Chapter 13 bankruptcy means that you won’t have to sell your assets to pay your debts. Instead, your debts are reorganized so you can pay them off in part or full over the next three- to five years.
Remember that creditors could sue you if your payments are not made according to the plan.
What happens to my credit if I declare bankruptcy?
Declaring bankruptcy is a sign you are not paying your debts according to the agreement. This can severely damage your credit score. The two types of bankruptcy, however, are not treated in the same manner. Chapter 7 bankruptcy can remain on your credit report up to 10 years after it is filed. This is because it completely erases all debts.
Although chapter 13 bankruptcy may not be the best option for credit, it is still a good choice because you have paid off some of your debts, and it will remain on credit reports for up to seven-year.
It may not be easy to get credit approval, particularly if you have favorable terms after your bankruptcy has been discharged by the court. However, some lenders will work with individuals who have been through bankruptcy or other credit-related events.
Credit scoring models also favor new information over older information. After bankruptcy, positive credit habits can help your credit score recover over time, even though it is still on your credit reports.
Are Bankruptcy Files Publicly Accessible?
Although bankruptcy proceedings are considered public records, that does not mean that everyone will access them. The system for filing bankruptcy proceedings is called Public Access to Court Electronic Records (or PACER).
It’s common for creditors and attorneys to use this system to find information about bankruptcy. Anyone can sign up and access the information if they wish. Access to case information is available for 10 cents per webpage.
Public notices in your local newspaper could also be a way for people to learn about your bankruptcy.
Employers, landlords, and creditors might be able to see on your credit reports that you have filed for bankruptcy.
What effect will bankruptcy have on my job and future employment?
According to CareerBuilder’s survey, 29 percent of employers conduct credit checks on job applicants. Declaring bankruptcy can affect your ability to find a job, especially if you are in the financial sector or work for a government agency.
This is done primarily to ensure you are a good match for the job, such as handling money. It also helps ensure you are not stressed financially, increasing your chances of fraud or theft.
Your bankruptcy will not be revealed if an employer does a routine background check.
Employers are less likely to conduct background checks on employees. If you don’t plan to change jobs, there is no reason to worry about a bankruptcy affecting your employment.
Keep track of your credit during the process
Declaring bankruptcy can harm your credit history and future ability to do certain things. It’s important that you monitor your credit scores throughout the process and working to recover from them.
You should also monitor how your credit scores are affected by certain actions. Also, be aware of potential errors or negative information that could impact your credit score. You can dispute any information that you find on your credit reports.
You’ll be able to track your credit score over time and how you can improve it.
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