Filing for bankruptcy can affect you in several different ways. For example, it gives you immediate financial relief and stops creditors from relentlessly pursuing you to collect debt. However, it will likely also cause your credit score to plummet. While some consequences may not sound ideal, the advantages of filing bankruptcy often outweigh the downsides, as it ultimately offers peace of mind and a brighter personal and financial outlook.
If your debts are overwhelming your income and you cannot see a way out, bankruptcy can help you escape financial hardship and give you a chance to start over. If you are considering this form of relief, you should know how filing for bankruptcy affects you. You should also understand the benefits of working with a local bankruptcy lawyer versus filing on your own.
Filing for Bankruptcy Affects How Debt Collectors Can Contact You
Creditors often use many intrusive methods to collect debt. Depending on the bankruptcy Chapter you choose, one of the primary benefits of filing for bankruptcy is the automatic stay.
According to the U.S. Courts, this is a ban that stops creditors from contacting you after you file a bankruptcy petition. The automatic stay means creditors must immediately stop trying to contact you via:
- Phone calls
- USPS mail
- Text messaging
- Personal contact
The automatic stay stops all collection activity that could otherwise make answering the phone and opening written mail and emails stressful. Your bankruptcy lawyer will explain when the automatic stay starts, how long it lasts, and what you can do if creditors do not abide by it.
When the bankruptcy process is complete, your remaining debt will likely be discharged, meaning you will never have to repay it. This may be available to filers of several types of bankruptcy, including Chapters 7, 11, 12, and 13. The discharge in bankruptcy is permanent, and creditors can no longer hold you responsible for discharged debts.
Debt discharge also extends the limitations of the automatic stay and prohibits creditors from contacting you about these debts. Many Chapter 7 filers can discharge most, if not all, of their debts.
Debts that cannot be discharged—or that may be difficult to discharge—include some secured debt, some liens, student loan debt, past due taxes, and debts you did not list in your bankruptcy filing.
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Filing for bankruptcy is detrimental to your credit score and will remain on your credit report for seven to ten years. In the immediate aftermath of bankruptcy, you will likely have a difficult time obtaining credit. As more time passes, qualifying for credit may be easier with timely payments.
Many bankruptcy filers must undergo credit counseling before filing for bankruptcy and debt education after filing. Post-filing debtor education aims to help you learn to manage future debt.
The potential impact on your credit score is one of the reasons deciding whether you should declare bankruptcy can be challenging. A bankruptcy attorney can review your finances and credit rating and help you make the best decision for you.
Chapter 7 bankruptcy typically allows the filer to retain all of their personal assets and property. This can be a huge relief when you want to keep possession of your home, car, and other exempt property.
According to the U.S. Courts, you must disclose your financial assets and liabilities and undergo a means test to determine whether you qualify. If your assets exceed a certain value, Chapter 7 bankruptcy will not be an option for you.
Your credit score is not likely to affect your current job. However, if you must search for a new job in the future, filing for bankruptcy may affect your ability to gain employment.
Many employers conduct background checks when choosing viable candidates for job openings. While filing for bankruptcy will not directly impact your job or career, poor credit might. This is especially true if your chosen career is in the financial industry or government.
Like many bankruptcy filers, you likely have several questions about declaring bankruptcy. A lawyer can explain the filing process, gather and review the necessary financial documents, and explain which assets you can keep.
Working with a lawyer also means they can clarify bankruptcy law and help you navigate the many forms and schedules the court requires. Many will review your case at no cost or obligation and represent you when dealing with the trustee and in all court sessions.
The Bankruptcy Chapter You File Under Can Affect Your Outcome
Bankruptcy is divided into various Chapters depending on your personal and business circumstances. Common bankruptcy Chapters include:
- Chapter 7: For individuals and small businesses that pass the means test
- Chapter 11: For large businesses and corporations to reorganize debt
- Chapter 12: For family farmers and fishermen to restructure debt
- Chapter 13: For individuals and businesses that cannot pass the means test
This list is in no way exhaustive. Your bankruptcy attorney will work with you to determine the right Chapter for you to provide optimal financial relief.
Declaring bankruptcy can give you relief from debt and the opportunity to restart your financial life. When you choose this option, you should be aware of all the ways filing for bankruptcy affects you, as well as any alternatives to bankruptcy that may be possible in your situation.
Learn more about the filing process by contacting one of our team members at Farmer & Morris Law, PLLC today.