Bankruptcy is a very serious financial decision and not the one you should take on lightly. Truth, it can save you a lot of trouble, but the process is not what would we call simple and easy, and the consequences of bankruptcy are sometimes quite serious and harmful for the future career. Similar to any other legal process, bankruptcy has both positive and negative consequences. This article will focus on the reverberations that come after filing for bankruptcy, and how to reduce their effect.
What is Bankruptcy?
The essence of bankruptcy is helping people whose finances collapsed to start over. Therefore, bankruptcy laws were written to offer a second chance to consumers and businesses who failed. The process of bankruptcy is basically checking the assets and responsibilities of individuals and businesses which couldn’t pay their financial obligations and deciding whether to discharge those debts. The examination is done by a judge and court trustee, and in the vast majority of cases, the debts were discharged. If you decide to file for bankruptcy, you have to choose between two types: Chapter 7 or Chapter 13. Both of them can help you stave off all the repercussions, but they relieve debt in separate methods.
Chapter 7 Bankruptcy
Chapter 7 bankruptcy is also called straight bankruptcy, and it is a legal operation that most people associate with bankruptcy. After you file this kind of bankruptcy you’re compelled to allow the sale of your assets that aren’t exempt. The seal is done by a federal court trustee and the money from the sale is used to pay off your creditors. After that, your debt is eliminated and your financial obligations are cleared. Be aware though that you cannot erase all debts this way. For example, you will still have to pay for alimony, student loans, and child support.
Chapter 13 Bankruptcy
On the other hand, Chapter 13 bankruptcy allows you to keep your property in exchange for repaying your debt partially or completely. The first step in this method of bankruptcy is negotiation with the court about the conditions of repayment. Depending on the severity of the debt, the court may agree you should repay just a part of your depth during that period. When you complete your repay obligations your debt is discharged and you’re free of the remaining repayment.
Bankruptcy and Credit Report
Although both kinds of bankruptcy are not very favorable for your credit report, Chapter 13 is probably the better option. If you file for Chapter 13 bankruptcy you may keep some of your assets after the payment, and it will be erased from your credit score after 7 years, compared to Chapter 7’s ten. Additionally, you can file for Chapter 13 bankruptcy again in only two years, while Chapter 7 requires eight.
Bankruptcy And Credit Score
Apparently, bankruptcy will negatively affect your credit score, but the exact level of impact depends on many factors. That makes it very hard to estimate how much your score will drop. The best way is to visit a consulting agency, such as Dean-Willcocks Advisory, and ask them to help estimate the potential damage the bankruptcy may inflict. What goes without saying is that bankruptcy is one of the worst things you can have on your credit report. More so, the higher your score was prior to the bankruptcy, the more it will plummet down. And lower credit score means you will have a hard time getting credit and if you do you will have higher interest rates.
Bankruptcy and Employment
Filing for bankruptcy might prove itself a major obstacle in finding a new job. The majority of employers will look at credit reports of each job applicant, and none of them will be agreeable to bankruptcy. Although not all companies will do this, some employers in the private sector will frown upon the bankruptcy on potential employee’s accounts.
Another major inconvenience coming from bankruptcy is that everything your file in the court will have your private information accessible to the public. That means everybody, including your friends, family, relatives, and clients will find out all the nifty little details about your financial misdeeds. This is probably the biggest reason why people hesitate to file for bankruptcy. However, even in that case, your crucial info is protected, such as your social security and taxpayer identification numbers.
You have already seen that filing for bankruptcy is a major financial decision that will affect your financial image for a long time. For many people, bankruptcy is the only chance to start over, but it doesn’t mean you should go headfirst into it, without considering the consequences. Although it might save your assets and your nerves, bankruptcy will leave you scrutinized and it will harm your credit score heavily. Make sure you consult an expert and try to understand how a bankruptcy will impact your financial standing.