When you file for bankruptcy, it is a legal process that can help you get relief from debts that you cannot repay. Here are the key steps and consequences of filing for bankruptcy:
-
Choose the right bankruptcy type: There are two common types of bankruptcies for individuals: Chapter 7 and Chapter 13. In Chapter 7, many of your assets may be sold to pay your creditors, while in Chapter 13, you keep your assets but must repay your debts over a specified period.
-
File a petition in federal court: Once you file a petition for bankruptcy, your creditors will be informed, and they must stop pursuing any debt you owe. The court will request information about your total debt, creditors, income, and expenses.
-
Automatic stay: When you file for bankruptcy, you benefit from an automatic stay, which immediately notifies your creditors of your status and bars them from contacting you or attempting to collect the debt in any way.
-
Work with the court and creditors: After filing for bankruptcy, you will have time to work with the court and your creditors to determine the next steps, such as asset liquidation or debt repayment.
-
Debt discharge: At the end of the bankruptcy process, the court may issue a discharge, relieving you of your liability to pay back the listed debts. This means that creditors no longer have a legal claim to the discharged debts.
The consequences of filing for bankruptcy can be significant:
-
Credit damage: Bankruptcy is considered negative information on your credit report and can affect how future lenders view you. It will remain on your credit report for seven or 10 years, depending on the type of bankruptcy.
-
Loss of property: Depending on the type of bankruptcy, you may be required to give up certain assets for sale to repay creditors. This can include real estate, vehicles, jewelry, and other possessions.
-
Difficulty obtaining credit: Filing for bankruptcy can make it difficult to obtain a credit card, car loan, or mortgage in the future.
-
Financial impact on others: If someone co-signed a loan for you, such as your parents, they could still be held responsible for at least some of the debt.
