3 Consequences of Filing for Bankruptcy You Need to Know
While this does not influence our product opinions, we do receive compensation from partners whose offers appear here. We are by your side, always. See our full disclosure to advertisers here.
If you’re drowning in debt and can’t see the light at the end of the tunnel, filing for bankruptcy may seem like a viable option. With a Chapter 13 bankruptcy, you reorganize your debts so that they are easier to pay off. You will then have to stick to an agreed payment plan, which will save you from creditors. With a Chapter 7 bankruptcy, you liquidate your assets and a trustee uses the proceeds from their sale to repay creditors as much as possible, after which you can start over with a clean slate of debt.
At the end of September 2020, there were 420,048 bankruptcy filings in the United States, according to new research from The Ascent. If you are considering going bankrupt, be sure to educate yourself on the consequences that could ensue. Here are three you should know.
1. Damage to credit history
A Chapter 13 bankruptcy will stay on your credit report for seven years after you file, while a Chapter 7 will stay there for 10 years. Any type of bankruptcy is a sign that you are not a trustworthy borrower. Following a filing, you may find it difficult, if not impossible, to obtain a mortgage loan, a car loan or even a credit card. Bankruptcy on your credit report could also get you turned down when applying to rent a house.
2. Loss of assets
With a Chapter 7 bankruptcy filing, a trustee liquidates your assets to pay off creditors. This means that you risk losing essential or important things to you, such as jewelry or even a vehicle. Now, the good news is that some of your assets will likely be exempt during the Chapter 7 process, but the details of what you’re allowed to keep vary by state. You will need to consult with an attorney to see what assets you stand to lose if you opt for a Chapter 7 filing.
3. Spend a lot of money
The only reason people file for bankruptcy is because they find themselves in a cash crunch and cannot meet their debt. But ironically, the bankruptcy process is costly in itself. For one thing, you’ll have to pay a court filing fee just to get the process started. For a Chapter 7, the fee is $335. For a Chapter 13, it’s $310. But this does not include legal fees. Remember, lawyers don’t help clients file for bankruptcy out of the goodness of their hearts; they must be paid. Some attorneys charge a flat fee to oversee a bankruptcy filing, while others charge by the hour. Either way, you could end up with a substantial tab to pay.
The bankruptcy process can be a long and stressful ordeal as you go through it, and it could have a lasting impact beyond that. Make sure you understand what you’re getting into before filing for bankruptcy. There may be a better way to manage your debt, such as reaching a settlement agreement with your creditors, so pursue your options before rushing into Chapter 13 or 7 proceedings.