What happens when you declare bankruptcy?

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Many of you wonder if bankruptcy will affect your future employment.


Being bankrupt is never easy. This is a very stressful situation that you have to deal with. In addition to the difficult situation you find yourself in, you also have to deal with all the collection calls at home. At times like this, you should never be afraid to ask for help. A personal bankruptcy lawyer can help you with legal advice so you can get the most out of this case.

But what really happens when you declare bankruptcy? Let’s find out.

What you need to know before declaring bankruptcy

Try to leave bankruptcy as a last resort when you are struggling with bills, as there are many other alternatives beforehand. For example, you can try to contact your creditors for a negotiation. Most of them will agree to get reduced payments over a longer period.

In case you are struggling with a home loan, contact your loan services. Several options should be available to you, such as forbearance or modification of the loan. Also, if you’re struggling with taxes, the IRS will usually agree to offer a payment plan or accept an offer in compromise.

How to file your balance sheet?

If all else fails, here’s how you can file for bankruptcy. The first thing to do is consult a lawyer. Whereas filing without a lawyer is also possible, not really recommended, according to the US Courts Administrative Office.

Before filing, you will be approached by a credit counselor who will assess your personal financial situation and help you create a budget plan, after showing you the alternatives to bankruptcy.

This advisor must be from an organization approved by the US Department of Justice Trustee Program. If you cannot afford to pay, the counseling session may be free. However, if you can afford it, it costs around $50. The counselor should tell you which type of bankruptcy is best for you.

Types of bankruptcy

While it is true that there are many types of business bankruptcy, when it comes to personal bankruptcy the most common are Chapter 7 and Chapter 13.

Chapter 7 bankruptcy liquidates your assets in order to pay your creditors. This means that the equity in your home will go to your creditors. Even if your house will be sold, you will be able to keep your personal belongings, such as automobiles, personal items, tools or clothing.

Home equity refers to your property, but not your primary residence, boats, second car, collectibles or other valuables, and bank accounts and /or investment accounts.

Chapter 13, on the other hand, lets you keep all of your assets, but the collector will have to get their money back over the next three to five years.

What happens to your credit in the event of bankruptcy?

When you declare bankruptcy, you let everyone know that you can no longer afford to pay your debts and this can seriously damage your credit history. That being said, Chapter 7 bankruptcy stays on your report for up to ten years. Chapter 13 bankruptcy is not well regarded but is favored because you pay off part of your debts and it stays on your report for up to seven years.

Image by Charles, via Unsplash.com.

After your bankruptcy is canceled by the court, it will be very difficult for you to get credit approvals. However, some lenders prefer to work with former bankrupts. There is also the new credit score system which favors new information over old.

Job or future job

Many of you wonder if bankruptcy will affect your future employment. There are indeed some employers who check the credit of new applicants. So, considering this fact, bankruptcy might be a problem when applying for a new job. This is especially the case if the job is in financial services or a government entity. However, if an employer simply performs a criminal background check, bankruptcy will not appear.

It is less common for companies to perform checks on active employees. So unless you plan to change jobs, your current job should be fine.

The essential

Bankruptcy has never been an easy thing to go through. Between going to court, going to counseling and having to give back every penny, it’s good to know that there are also positive aspects. For example, it won’t affect your job much and it will only stay on your file for a few years.

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