If you file for bankruptcy, the process and consequences depend largely on the type of bankruptcy you choose, typically Chapter 7 or Chapter 13 in the U.S.
What Happens When You File Bankruptcy?
Chapter 7 Bankruptcy (Liquidation)
- You must complete a credit counseling course before filing.
- You pay a filing fee (about $338).
- A trustee is appointed who will liquidate your non-exempt assets to pay creditors.
- A meeting of creditors occurs within 21 to 40 days after filing.
- Remaining eligible debts are discharged (canceled) usually within 4 to 6 months.
- This means you are no longer legally required to pay those debts, and creditors cannot pursue collection
Chapter 13 Bankruptcy (Repayment Plan)
- Also requires credit counseling before filing.
- Filing fee is about $313.
- You propose a repayment plan to pay off some or all debts over 3 to 5 years.
- You start making payments within 30 days of filing, even before plan approval.
- A meeting of creditors occurs within 21 to 50 days.
- A confirmation hearing is held within 45 days after the creditors' meeting to approve or deny the plan.
- After completing the plan, any remaining eligible debt is discharged
General Effects of Filing Bankruptcy
- Your creditors are notified and must stop all collection efforts, including lawsuits and wage garnishments.
- Your credit report will show the bankruptcy for 7 years (Chapter 13) or 10 years (Chapter 7), which can severely impact your ability to get new credit, loans, or mortgages.
- You may lose some personal assets in Chapter 7, but some assets are exempt by law.
- Bankruptcy offers a fresh financial start by legally discharging debts you cannot pay.
- Rebuilding credit after bankruptcy is possible over time by using secured credit cards and making timely payments
In Other Jurisdictions (e.g., Netherlands)
- A court-appointed curator manages your assets and creditors.
- If a bankruptcy agreement is reached and approved by the court, you pay creditors as agreed.
- If not, assets are sold to pay creditors according to their rank.
- For sole proprietors, personal assets may be used to pay business debts.
- Bankruptcy can end, but unpaid debts may still be claimed later.
- Business owners with legal entities may have limited personal liability unless mismanagement or personal guarantees exist
In summary, filing bankruptcy provides legal relief from overwhelming debt either by liquidating assets to pay creditors or by reorganizing debts into a manageable repayment plan. It stops creditor actions and can give a fresh start but comes with significant consequences for your credit and asset ownership
