When you file for bankruptcy, it means that you are no longer able to pay your debts as originally agreed, and it can seriously damage your credit score. The exact steps for declaring bankruptcy can depend on the type of bankruptcy, but generally, you will file a petition in federal court, and your creditors will be informed and must stop pursuing any debt you owe. Here are some things that happen when you claim bankruptcy:
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Automatic Stay: Declaring bankruptcy grants whats called an automatic stay, which is essentially a block on your debt to keep creditors from trying to collect. They cant deduct money from your bank account, garnish your wages or go after any of your other assets.
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Asset Liquidation: If you file for 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.
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Credit Score Damage: Bankruptcy can do severe damage to your credit score and should be considered a last resort. It will remain on your credit report for 7-10 years, affecting your ability to open credit card accounts and get approved for loans with favorable rates.
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Debt Discharge: When the bankruptcy court issues a discharge, you are relieved of your liability to pay back the listed debts. That means creditors no longer have a legal claim.
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Credit Counseling: You will be required to take a court-approved credit counseling course.
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Employment Impact: Declaring bankruptcy could affect your ability to get a new job, especially if that job is in the financial services industry or with a government entity.
Its important to note that bankruptcy is typically considered a last resort option for people suffering financial hardship, and its important to understand the consequences before filing.
