When a person has lost all hope of recovering from financial distress, then the last option left for them is filing for bankruptcy. Though it is an excellent way of getting rid of debts and wiping your slate clean, it has adverse effects too. You might end up losing some of your possessions. Getting credit might be difficult for you for almost as long as the bankruptcy is mentioned on your credit report.
According to Los Angeles based bankruptcy law firm Recovery Law Group lawyers, bankruptcy is a way out for people struggling to make their ends meet. You end up eliminating your debts entirely or pay just a portion of your debts when you file for bankruptcy. Additional benefits include automatic stay which puts a hold to all collection actions including repossession, wage garnishment, foreclosure, etc. This provides you with the time essential to formulate a strategy to work out your debts.
Individual debtors can file for bankruptcy under Chapter 7 or Chapter 13. The type and amount of property they can protect depends on the chapter which they choose.
- Chapter 7
This type of bankruptcy is known as liquidation bankruptcy and some assets which are not exempted by state or federal laws can be sold off to pay some portion of your debts. Certain assets like retirement accounts, and equity in house and car are exempted from liquidation. Bankruptcy attorneys can guide you better in this aspect.
- Chapter 13
In this bankruptcy chapter, you are not required to sell off any property to pay your debts. Your debts are reorganized, and a repayment plan is devised based on your disposable income. Through this plan, you end up paying your debts (either partially or fully) over a period of 3-5 years. Non-compliance of the repayment plan might cause you to lose assets over to the creditors in lieu of the debts.
Bankruptcy and credit rating
Bankruptcy is generally a last resort. People who have been unable to pay their debts on time end up accumulating too big an amount leaving no other way out except bankruptcy. Being behind on payments has a negative effect on your credit history. However, since in Chapter 7, no debts are paid, this type of bankruptcy stays on your credit report for 10 years. While, in Chapter 13 bankruptcy Dallas, some portion of the debts is paid off through the repayment plan, the bankruptcy is mentioned on your credit report for 7 years only.
People who have just had their bankruptcy discharged might find it difficult to get any loan approved, especially at favorable rates. Options available to such people are getting a secured credit card or getting credit from people who specifically assist people who have just come out of bankruptcy. Regular efforts towards building positive credit can help improve your credit rating.
Effect of bankruptcy on other aspects of life
Bankruptcy filings are public record. However, everyone does not know about it. These are filed in the PACER system (Public Access to Court Electronic Records) which can be accessed by attorneys and creditors. However, their are charges associated to access the records, thus not everyone will access the records. People can be aware of your bankruptcy in case local newspaper publishes the information. Employers, creditors, and landlords can see your credit report when you apply for a job, a loan or an apartment lease.
Credit checks are carried out by most employers prior to appointing anyone. A bankruptcy might, therefore, hamper your chances of getting employment, especially in financial and government sectors. A routine criminal background check, however, does not come up with bankruptcy. Current employees rarely need to undergo background checks, thus, if you don’t plan to change jobs, bankruptcy won’t affect you much.
Improving your credit score post-bankruptcy is important. All financial decision you take will affect your credit score. Thus, emphasis must be made on positive ones like living within a budget, making payments on time. Getting a regular update on your credit score is important to dispute any incorrect entries, which might impact your credit history. Any discrepancies must be reported to the credit rating bureaus. An experienced bankruptcy attorney can help you through different aspects of bankruptcy. In case you need consulting, you can call 888-297-6023.