Bankruptcy: What Are Its Consequences?
From October 1, 2005, to September 30, 2017, more than 12 million people have filed for consumer bankruptcy petitions in the federal courts. The number of petitions filed has grown significantly. For instance, in 2106, there were over 770,846 bankruptcy cases filed. It is a complex issue that can have both positive and negative impacts. Let’s take a quick look at the bankruptcy process, along with its consequences.
What is Bankruptcy?
“Bankruptcy is a legal process with the help of which people or other entities who are not able to repay debts to creditors may seek relief from some or all of their debts.”
Bankruptcy process is very complicated legal process that requires working with a bankruptcy attorney to file the proper documentation. A person filing for bankruptcy must demonstrate that they are not capable of paying off their debts.
Types of Bankruptcy
If you have no choice but to file for bankruptcy, your attorney will guide you through the process of deciding which type of bankruptcy is best for your situation. As there are two types of bankruptcy available to you, Chapter 7 or Chapter 13, it is imperative that you make the right decision.
In Chapter 7 bankruptcy, also referred to as straight bankruptcy, you allow a federal court trustee to supervise the sale of your nonexempt assets with the money being paid to your creditors. The balance owed after the bankruptcy is discharged, however, you are still obligated to pay legal alimony and child support, student loans, and federal and state taxes.
Chapter 13 bankruptcy works in a slightly different manner. Here, you can partially or entirely pay off your debt without losing your property or assets. With this type of bankruptcy, your lawyer will negotiate a 3-5 year repayment plan. Depending upon the negotiated plan, you can either pay off your debt entirely or partially for your debt to be discharged.
Consequences of Bankruptcy
While bankruptcy might be able to relieve your debt burden, there are a number of things to consider should you decide to file. Bankruptcy is complex with both positive and negative consequences. If you’re planning to file for bankruptcy, make sure you consider all possible outcomes before taking this step. Here are a few negative consequences of declaring bankruptcy.
Loss of property
The major effect of bankruptcy is the loss of property. In either type of bankruptcy, you might have to give up your possessions or assets for sale. This includes real estate, jewelry, cars, and other assets you may have. The point of filing for bankruptcy is to allow the court to decide how much debt should be forgiven and how much you need to pay off. If you own something of value, such as a luxury car, you may be forced to sell it to pay off your debt.
Privacy gets hampered
Another negative consequence of filing for bankruptcy is that the public has access to your bankruptcy schedules, which includes sensitive personal financial information. This means friends, family, employers, and clients could potentially find out the details of how much money you owe and to whom it is owed.
Lowers your credit score
Bankruptcy reflects negatively on your credit report and can disrupt future loan prospects resulting in higher interest rates and more restrictive repayment requirements. This negative information can appear on your credit report for seven to ten years and all of your discharged accounts will be updated with this information.
Whether you’re considering to file a Chapter 7 straight bankruptcy or a Chapter 13 repayment plan, consult with a Trimble & Register bankruptcy attorney to ensure that the process runs smoothly and you are represented fairly.
How to Avoid Bankruptcy?
Bankruptcy might provide you with short term debt relief but will hamper your credit and loan-seeking options in the long run. Therefore, it is better to avoid bankruptcy and look for other options. A few alternatives to bankruptcy are discussed below.
- Consider a debt management plan or seek help from a government-approved credit counselor
- Take out a debt consolidation loan.
- Contact your creditors, and check if they are willing to provide more flexibility with your debt repayment.
These actions will also have a negative impact on your credit but not as much as filing for bankruptcy.
If you fail to repay your debts, your credit will be affected. However, some debt relief methods have more damaging and prolonged consequences than others. Bankruptcy severely damages your credit and will make it more difficult to seek credit. Therefore, before making the decision to file for bankruptcy, it is essential to analyze the impacts of the choices available to you.
Dealing with financial issues and the threat of bankruptcy? Contact Trimble & Register today! We offer comprehensive advice for bankruptcy and other areas of legal practice. We can help you assess the benefits and consequences of filing for bankruptcy, and whether or not you qualify to permanently discharge debts under Chapter 7 or Chapter 13 protection. Trimble & Register will work with you to reestablish your credit after bankruptcy and help protect you from the wrongful acts of abusive creditors or debt collectors.