Results of Filing Bankruptcy
The results of filing for bankruptcy depend on the type of bankruptcy filed, amounts owed and debt types. Bankruptcies can help relieve consumers of burdensome debt, but a bankruptcy on your credit report may make it difficult for you to obtain credit or get favorable interest rates. Consulting a legal professional regarding your responsibilities and options prior to filing may help.
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Immediate Consequences
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Immediately following a petition for bankruptcy, the court notifies your creditors of an "automatic stay" in collection. The automatic stay prevents creditors and debt collectors from taking action until the court decides whether the bankruptcy process can proceed and which debt are to be repaid or discharged. Depending on the type of bankruptcy, amounts owed and petitioner assets, the courts may order the liquidation of some assets or properties to repay debt. Liquidation occurs in Chapter 7 bankruptcy. Chapter 13 bankruptcy involves the development of a repayment plan. Once the bankruptcy is completed, debts may be discharged, reducing financial difficulties.
Long-Term Results
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Your credit report reflects bankruptcy proceedings for seven to 10 years, depending on the type of bankruptcy filed. Bankruptcy reduces your credit score considerably. The Fair Isaac Corporation (FICO) scoring model treats both Chapter 7 and Chapter 13 bankruptcies similarly when calculating credit scores. Time lessens credit-scoring consequences, and positive information added to your credit report following bankruptcy helps balance out payment delinquencies and discharges. Under a Chapter 13 bankruptcy, petitioners repay some debts within the time frame set by the courts. Repayment plans may take three to five years to resolve.
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Debt Liability After Bankruptcy
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Bankruptcy does not erase all debts, and collection of some debts may resume after the automatic stay ends and after the bankruptcy process is completed. You may remain liable for child support, alimony, government debt, student loans, tax debt, personal injury and other court fines or judgments. Additionally, debts secured by a lien against assets or property may result in repossession, foreclosure or seizure of property to repay the amount owed after the automatic stay lifts or after the bankruptcy is finalized.
Concerns
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Increasingly, employers, insurance companies and other businesses requiring long-term commitments check your credit report prior to hiring or offering services. While employers cannot directly discriminate against you because of a bankruptcy, a poor credit rating may hinder job prospects --- particularly financial industry employment --- and increase insurance rates. Additionally, cell phone companies, utilities companies, landlords and other companies may require a large deposit to protect against nonpayment or delinquencies.
Considerations
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Credit reporting errors do occur, and they can make recovering from bankruptcy more difficult. Following a bankruptcy, check your credit report for inaccuracies. You can obtain a free copy of your credit report once each year through AnnualCreditReport.com. If an account discharged in bankruptcy is not reported correctly, file a dispute with the creditor and the credit bureau to have the information changed. If a creditor continues to pursue you for a discharged debt, provide the creditor with proof of the discharge.
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