Are you struggling to make the debt payments? If yes, then your finances may not be strong at all due to which you aren’t able to pay off the debts. In such a situation, bankruptcy may be the right option for you. With the help of it, you will be released from the outstanding debts either partly or completely. It will provide a fresh financial start to the unfortunate people. However, bankruptcy will have a negative impact on credit score and it will appear on your credit report for 7 to 10 years, depending upon the type you may file.
Different types of bankruptcy
There are mainly 2 types of bankruptcy – Chapter 7 and Chapter 13.
In case of Chapter 7 bankruptcy, the court will forgive most of your debts that are not protected by asset or property. Other than this, you will be able to retain some exempt assets. A trustee who is appointed by the court will take possession of non-exemptible property and is held responsible to pay off your several debts.
Chapter 13 bankruptcy is considered to be your only option when the court determines that you’re having sufficient income to pay off a certain part of your debts. When you file for Chapter 13 bankruptcy, this will enable you to repay the debts in installment for a certain time period, say 3 to 5 years. The bankruptcy court will have to approve the payment plan you’ve drafted to repay a certain part or all of your debt.
Instant effect after filing bankruptcy
After filing bankruptcy, you will get financial relief immediately despite which kind of bankruptcy you may file. The reason behind this is when you file for bankruptcy at the initial stage, then your creditors should stop the collection efforts right away. Although bankruptcy process may drag you for the long six months, you’ll be able to stay free from the harassing calls of your creditors during that time. Thus, after bankruptcy, your record will be clean and you’ll become free from all financial hurdles. However, you may want to exempt your home or car payments on which you are making timely payments every month in Chapter 13 bankruptcy.
The long effects of bankruptcy filing
Although all your previous debts will be wiped away from the credit report, it will still appear on the report that you had filed for bankruptcy. The bankruptcy filing will remain on your credit report for 10 years. As such, you won’t be able to apply for new credit cards, personal or mortgage loans since the lenders will consider you to be a high risk borrower. However, you may also see that the further the bankruptcy may be in the past, the easier it is going to be for you to borrow again, though you may have to pay high rate of interest than the other borrowers.
Thus, if your financial condition is poor or you have lost your job suddenly, then bankruptcy will enable you to make a financial start by eliminating your debts.