going bankrupt consequences

Going Bankrupt Consequences: All You Need to Know

Thousands of people declare themselves bankrupt each year because they understand they can’t pay for each debt they have.

If you notice you can’t pay off your debts, and you’re struggling to make ends meet at the end of each month, it may be time to take a look at your credit report and determine if you should file for Chapter 7 bankruptcy or Chapter 13 bankruptcy.

A bankruptcy case is not easy because you have to fill out several forms, which is why you should at least understand the bankruptcy basics.

On the other hand, getting a bankruptcy attorney could be a great idea, especially if you’re aiming to work on a repayment plan to get a fresh start.

When you declare yourself bankrupt, you have to go through a complicated legal process, choose if you want to file for Chapter 7 bankruptcy or Chapter 13 bankruptcy, and even go to court to determine what happens to you in the next three to 10 years.

Some Things You Should Know About Bankruptcy

Bankruptcy is simply a legal process where you declare yourself unable to pay off your debts. When you begin all the bankruptcy proceedings, you have to prove to your creditors and the court that you can’t pay each debt you have.

Therefore, the legal part involves a court. After showing your credit report, they must decide whether or not to discharge you from your debt.

Furthermore, there are six types of bankruptcy in total, but the only ones you can file for as an individual are Chapter 7 bankruptcy and Chapter 13 bankruptcy.

Lastly, you should keep in mind that bankruptcy is not a fun experience. Most people and experts might suggest you should avoid it if you can because you have to involve your credit report, work on each debt, and might even have to say goodbye to your property or other assets if you’re behind on mortgage payments or have similar issues.

Can You Get in Trouble for Going Bankrupt?

There are consequences of bankruptcy you should keep in mind when you’re thinking about all your alternatives.

In many cases, a bankruptcy filing is the last resort for you if you know you can’t pay all your debts. However, it doesn’t mean it can solve all your money problems.

Regardless of the type of bankruptcy you file for, it leaves a mark on your credit card score, and your credit score overall. In other words, it could affect your chances of getting credit, even after 10 years of filing.

It doesn’t matter if you get discharged or not. Once you start the process with the bankruptcy court, your credit score drops. While you can work to recover from that, it can still hinder you if you ever want to get credit, since your score can drop 100 or more points.

Additionally, there are other negative outcomes you could experience if you fire for bankruptcy. Even though you may have a job right now, if you ever need to find a different one in the future, employers could access your credit report. Federal laws forbid them from not hiring people solely based on that fact, but it still is an important factor.

When you file for bankruptcy, you may be able to keep some of your possessions, and the bankruptcy court can discharge your debts. Nonetheless, they don’t take care of every single debt you have, especially if you owe a specific loan or if you have to pay something like insurance or child support.

The bankruptcy court can’t discharge your federal student loans, taxes, different services, and fines you may owe to the government. Therefore, although you don’t actually get in trouble if you file for bankruptcy, there are different consequences you shouldn’t forget before starting your process.

Should You File for Bankruptcy?

Many people feel scared when they think about filing for bankruptcy. They fear what can happen once they begin the process, especially if they have student loans to pay, child support to take care of, and other assets.

Even though the consequences of bankruptcy may be scary, you should focus on paying off each debt, improving your personal credit, saying goodbye to the loan you got, and guaranteeing you don’t miss any mortgage payment.

If you’re thinking about starting the bankruptcy filing process, it means you probably should begin so you can settle your debt.

The best advice to follow is to improve your behavior as a debtor and make sure you’re free of debt as soon as you can. You can only do that if you focus on each loan and debt.

Filing for bankruptcy does not mean your life is ending, regardless of the type of bankruptcy you’re filing for. On the contrary, it means you get a fresh start, you can work on a repayment plan to manage each debt you have, and you can feel free to begin new personal financial habits.

Thousands of people file for bankruptcy each year since everyone can have a debt they cannot pay, so you should keep in mind that anyone can go through it.

Would You Lose Your Home If You Declare Yourself Bankrupt?

Many people who file for Chapter 13 bankruptcy don’t lose their homes. However, if you file for Chapter 7, then it depends on the equity you have in your house.

When you start your bankruptcy filing process, you can exempt specific property, for example, your house.

Exempting property means you can protect a percentage of its value. If what you have in equity is less than that amount, then the trustee is probably not going to sell your house off because it’s not enough to pay off your debt to the creditors. However, if you miss mortgage payments, your lender could still foreclose the property.

On the contrary, if your equity is higher than your exemption, then the trustee could sell your house to pay your debt, and you may get the rest of the money. You decide what to do with that because it’s personal revenue from the property sale.

Thus, even though bankruptcy might affect the chances of keeping your home, there’s still hope. The most important thing about the procedure is to be able to pay off your debts and feel free.

Can You Keep Your Car While You’re Filing for Bankruptcy?

Keeping your car after your open your bankruptcy case is not that hard if you’re able to complete all your debt payments.

If you can pay for your car debt, then you can keep it. Nonetheless, if you can’t keep up with all the payments, then the court has to decide depending on several factors: how much money you owe, how much you can exempt depending on your state, and how much the car is worth.

Laws vary from state to state, but if the exemption is lower than the equity, then you may not be able to keep your car. The trustee may decide to sell it off, and you would get the exempt portion. Even so, it’s rare for that to happen.

Even though it all sounds negative, when you can’t keep up with your debt payments, there are still some options that might bring you some relief.

You may be able to keep your car under certain circumstances, but you need to know all your alternatives. Overall, you should try to keep it because, after bankruptcy, you may have a hard time trying to get another one due to your debt.

Firstly, getting a loan after bankruptcy is not an easy thing to do. Additionally, you may not be able to find a good deal to buy a car if you lose the one you have because you may not qualify for it. Thus, finding ways of paying off what you owe might be a great option to ensure you keep your vehicle.

How Much Money Can You Keep If You File for Chapter 7 Bankruptcy?

If you’ve never filed for bankruptcy before, you may not know if you can even keep cash money once you start your repayment plan, or simply continue with your Chapter 7 proceedings to say goodbye to your debt.

Regardless of whether you file for Chapter 13 or Chapter 7 bankruptcy, you may be able to have some cash depending on the state you’re in.

However, if you have a debt to settle with some financial institution, they might take money from your account held with them. At the end of the day, all creditors want their money back, so the goal in your bankruptcy is to stabilize your financial situation and make sure you make as many payments as you can.

Even so, there are some exceptions, for example, disability and child support payments, unemployment, alimony, and Social Security.

Does Your Bankruptcy Appear on a Public Record?

Unfortunately, yes. All bankruptcies are on public records, which means anyone with an internet connection can find you.

Since your bankruptcy appears on a public record, anyone can ask to see it and they have the right to. Via the internet, someone may also pay for it, but it’s costly, which is why it’s usually something only an attorney would do.

However, it is normal to feel uncomfortable and anxious at the thought of filing for bankruptcy and everyone finding out about it. Since you have to list all the people you owe, that may make you feel even worse.

Consequently, many people are scared of filing for bankruptcy and getting a bankruptcy attorney because they’re afraid of the stigma, and what they might have to endure in the future.

What you always need to know is that debt is more uncomfortable than the bankruptcy procedures you have to go through. It’s highly unlikely someone is going to start investigating who you owe money to, and bankruptcy cases aren’t usually famous unless they involve a celebrity. Therefore, try to focus on your personal path to improve your financial state, and don’t worry about anything else.

Can Your Employer Find Out About Your Bankruptcy?

They can find out, but it’s not something that happens to everybody. Under certain circumstances, one of your creditors might sue you and garnish your wages. If that occurs, then your employer needs to know because it cuts your checks.

Nonetheless, if your employer notices one of your creditors is garnishing your wages, they might even feel relief when they find out you filed for Chapter 13 or Chapter 7 bankruptcy because it means you want to change your repay all you owe and improve your situation.

If you file for Chapter 13, the court might order each debtor is paid directly from your wages, which means you would receive less money in your paycheck.

Lastly, you should remember that even though bankruptcy sounds like a completely negative situation to go through, laws forbid employers to base solely on bankruptcy filings when they deal with an employee since it’s discriminatory.

Therefore, even though not all employers know about their employees completing bankruptcy proceedings, if yours finds out, it may even be for the best. On some occasions, they might even give you some advice and suggestions to turn your life around.

How Long Does It Take to Rebuild Your Credit Score?

There is not a specific answer because it varies depending on your starting point. If you had a good credit score (for example, 700), it may drop more than 200 points.

People who have a score lower than 700 often have a 130-to-150 drop in their numbers. Even so, almost everyone who files for bankruptcy ends with a credit score that’s lower than 600.

Worrying about your credit score is completely normal because you would have to pay a much higher interest rate whenever you want to get a loan, and sometimes you may not even qualify for them.

Another way to improve your credit score is to get an unsecured credit card, which may be more expensive but might help you.

At the same time, a Chapter 13 and a Chapter 7 bankruptcy can stay on your credit report for years, which is why getting credit counseling is so important if you want to ensure you keep your property or guarantee that you quickly recover from your current situation.

While it takes three to five years to pay everything when you file for a Chapter 13 bankruptcy, it stays on your report for seven years. Filing for a Chapter 7, on the other hand, means your report shows it for much more time.

How Can You File for Bankruptcy?

Filing for a Chapter 7 or Chapter 13 bankruptcy is complicated because you have to complete several steps before your debts are discharged. On most occasions, learning more about the services an attorney can provide you is the best way to manage everything you need to do. Even so, the stages of the procedure are as follows:

  1. Choose the type of bankruptcy you’re filing for
  2. Gather all your personal documents and organize them
  3. Pay all the bankruptcy fees
  4. Complete a credit counseling course
  5. Hire an attorney
  6. Fill out the paperwork with your attorney
  7. Ensure you can afford all the fees (including what owe to your attorney)
  8. Print all the paperwork
  9. Send everything to the trustee
  10. Have your meeting with your creditors
  11. Take a specialized debtor education course
  12. Finish everything, and finally, feel some relief!

Should You File for Chapter 7 Bankruptcy or Chapter 13 Bankruptcy?

If you’re trying to determine which bankruptcy type you’re filing for, there are a few things you should think about. Even though both types can bring some relief into your life, they also have disadvantages you should evaluate before deciding.

Chapter 13 bankruptcy is a convenient alternative if you’re sure you’re paying off all your debt in three to five years. Paying everything you owe is not easy, but if you’re sure you can do it with a specific plan, then it may be the option you’re looking for.

Many people feel scared about filing for a Chapter 7 bankruptcy because its consequences are much worse if you’re a debtor. Loans are harder to get after it, but after everything is over, you may look back and notice the best advice you got was to start the procedure in the first place.

Chapter 7 is necessary if you know you can’t keep up with your property payments, credit card payments, medical bills, and more. Even though Chapter 7 doesn’t solve all your problems, it can ensure you’re discharged of a specific debt (or more), which would allow you to make better decisions with your income.


When you realize you have no credit left to rely on, your credit card numbers are scary, you’re behind on mortgage payments, you can’t get any more loans, and your income doesn’t cover all the fees you need to take care of, it may be time to consider declaring bankruptcy.

Bankruptcy covers most of your unsecured debts, which means that you wouldn’t have to repay them if the court decides you’re discharged. As a debtor, you may have a lot of things on your mind – everything from loans to mortgage payments, your property, assets, and personal loans. However, you should try to focus on the court’s decision.

One last thing to keep in mind is that many experts offer services without paying for anything in advance. That doesn’t mean they’re free, but you can get their advice and help and start paying their fees once you improve your income and overall financial situation.

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