Will Bankruptcy Affect My Children?
Whether to file personal bankruptcy is a difficult decision, and the consequences can be far-reaching. While bankruptcy does have many benefits, it will change your life, and you can expect a ripple effect. Your bankruptcy will not hurt your child's credit or ability to get credit when the child becomes an adult, but bankruptcy has ancillary results that may impact your children.
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Negative Effects of Chapter 7
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Chapter 7 bankruptcy is a total liquidation. A trustee sells any nonexempt property and pays your creditors, and if you have no nonexempt property, your creditors get nothing. A typical no-asset case lasts only a few months, and most cases are no-asset cases. A Chapter 7 case can negatively impact your family in a number of ways emotionally, but the greatest negative impact in a typical Chapter 7 case is the impact on your credit score. All bankruptcy stays on your credit report for 10 years, but many potential lenders may subjectively view a Chapter 7 case in a more unfavorable light than other bankruptcies, because in most Chapter 7 cases, you don't have to pay anyone back. It's the bankruptcy of last resort.
Chapter 7 can also negatively affect your mood; you may have to miss work to attend your hearing, and you may feel guilty for having to file in the first place. If your case has any unusual circumstances, it could be longer and more stressful than a normal Chapter 7 case. A bankruptcy attorney can assess your specific situation and let you know the impact a Chapter 7 would have on your life.
Positive Effects of a Chapter 7
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The plus side of a Chapter 7 bankruptcy is freedom from your debt. Once the case is over, you will no longer be saddled by overwhelming credit card debt. Your creditors can't call you or send you letters anymore. You get a fresh start and an opportunity to begin using credit responsibly. Without the worry of paying your debt, you will have more disposable income available to take care of your family.
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Negative Effects of Chapter 13
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Chapter 13 bankruptcy is a repayment plan. Over a three- to five-year period, you will repay your creditors through a trustee, who collects your money and pays the creditors. Chapter 13 cases are for individuals who make too much money to file Chapter 7 or who want to save a house or a car. During the term of the plan, you must commit all of your disposable income to the case, which means you must live on a very tight budget while the rest of your money goes to the trustee. Chapter 13 bankruptcy can negatively impact your children because you will have little or no money left over to fund their activities, buy them gifts or take them places. The court makes you file a budget showing only necessary expenses, and the rest of your money must go into the case. The length of a chapter 13 case can seem grueling, and like Chapter 7, it can cause you stress and anxiety, which can affect your family.
Positive Effects of Chapter 13
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Although Chapter 13 is difficult, it has many positive aspects. Chapter 13 can help you control your spending and learn to live on a budget. It can also help you catch up on your house payment, protect your car from repossession and pay off the IRS. If you successfully complete a Chapter 13 plan, you can come out of the case with your car paid off and your mortgage current. You may even be able to get rid of a second or third mortgage entirely in a Chapter 13 case. If you can make it through to the end, a Chapter 13 can be a positive thing for your family, because it can save your home and car and get you out from under your debt.
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