Filing for bankruptcy can have both positive and negative consequences. Heres what happens when you file for bankruptcy:
Positive consequences:
- Automatic stay: Filing for bankruptcy grants an automatic stay, which is essentially a block on your debt to keep creditors from trying to collect. They can't deduct money from your bank account, garnish your wages, or go after any of your other assets.
- Discharge of debt: When you file for bankruptcy protection, a discharge from the court will relieve you of your obligation to repay your creditors for certain debts. Once your debt is discharged, your creditors cannot contact you or attempt to collect the debt in any way. A discharge of your debt is also permanent and final for all unsecured debt you include in your bankruptcy filing.
Negative consequences:
- Credit score: Bankruptcy will remain on your credit report for seven or ten years, depending on the type of bankruptcy. That can make it difficult to obtain a credit card, car loan, or mortgage in the future.
- Loss of property: What happens to your property depends on whether you file chapter 7 or chapter 13 bankruptcy. In a Chapter 7 bankruptcy, many of your assets will be sold off to pay your creditors. In a Chapter 13 bankruptcy, you keep the assets but must repay your debts over a specified period.
- Tax implications: If you are expecting a tax refund, a bankruptcy trustee can keep that refund to pay creditors. In Chapter 7, that can happen only once while in Chapter 13 that can happen every year of your repayment plan.
It's important to note that filing for bankruptcy is a legal process that either reduces, restructures, or eliminates your debts. Whether you get that opportunity is up to the bankruptcy court. You can file for bankruptcy on your own, or you can find a bankruptcy lawyer, which most experts regard as the most prudent avenue.
