In 2018, 750,000 people filed for bankruptcy in the US.
If you are considering bankruptcy, it can seem scary and unknown. It might be the best option for you, but you need to understand what happens when you file for bankruptcy to make an informed decision.
If you want to learn more about how filing for bankruptcy works, read on. We’ve got a quick guide for what you should expect.
What Happens When You File for Bankruptcy?
Filing bankruptcy will stop your creditors from calling you to collect on the debt, garnishing your wages, or going after your other assets.
After you file, you’ll go to court, where you work with the courts and a judge and your creditors to negotiate how much you’ll pay them.
Some of your debts may be discharged completely while others you’ll have to pay back in part. They also might take a lump sum to cancel the debt.
What Happens to My Possessions and Property?
Depending on which type of bankruptcy you file, you may or may not get to keep your possessions and property.
If you file chapter 7 bankruptcy, which is the most common type, you’ll probably have to sell off some of your assets to pay back a portion of your debt.
However, most states have laws that prevent you from being forced to sell certain things, like your house or car or being forced to liquidate retirement accounts.
Chapter 13 bankruptcy, though, is a bit different.
If you file chapter 13, you won’t need to sell your assets to pay your debts. Instead, your debts are reorganized. This means that create a plan to pay them off either in full, or partially, over the next three to five years.
What Happens to My Credit?
If you’ve ever wondered “should I file bankruptcy?” you need to understand what happens to your credit after you file. Bankruptcy has a negative impact on your credit. There is no way around that.
However, experts disagree on how bad this impact is. Here are the facts and you can make your own judgments.
Filing bankruptcy means you’re no longer paying your debts and even though they are discharged, the filing will stay on your credit report for a number of years (10 years with chapter 7 and seven years with chapter 13).
Once the court discharges your debt, you might have difficulty getting any sort of credit for a car loan, mortgage, etc. Some lenders will work with people who have filed for bankruptcy, but the loan terms aren’t as favorable as someone with better credit.
If you file for Chapter 7 bankruptcy and your debts are discharged, your score may go up as your debt goes down, but this could also reduce the amount of available debt if accounts are closed. It’s best to speak to an experienced bankruptcy attorney about your options and what’s best in your situation.
If you don’t think bankruptcy is right for you, there are other options out there. You can read more here for additional information.
Is Bankruptcy Right for You?
Filling for bankruptcy should not be taken lightly. Now that you have a better understanding of what happens when you file for bankruptcy, you can make an informed decision whether it might be a feasible option for you. Those who avoid discussing their income with their family or friends will need to conquer these anxieties and embrace the reality that their finances will be released inevitably. If you want to file for bankruptcy protection, chances are you’ll be required to fill out additional paperwork known as bankruptcy schedules. This extensive package will list your assets, expenses, income, debts and current financial transactions.
Consider your situation, your assets, and what you might be willing to part with, and the long-term impact on your credit.
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