4 Things That Happen When You File for Bankruptcy
Financial problems can cause a chain reaction of issues that get harder and harder to deal with. If worse comes to worst, you might have to file for bankruptcy. If you’ve never been in this situation before, you likely have several questions that need answers. For example, what happens when you file for bankruptcy?
1. The Court Puts a Stay on Most Creditor Calls
One of the benefits of filing for bankruptcy is there is an automatic stay put on most creditor calls. Many lawsuits and wage garnishments are also put on hold, but there are some that are still allowed to move forward. For example, you won’t have credit card debt collectors calling you anymore, but your wages might still be garnished for a child support order.
If you’ve received an eviction notice, that process will also be put on hold after you file for bankruptcy. In most states, you’ll still have to face eviction after your bankruptcy case is complete.
2. Many of Your Unsecured Consumer Debts Are Wiped Out
Unsecured debts are credit card bills, personal loans, overdue utility payments, medical bills and other similar financial obligations. These debts aren’t a priority and they aren’t secured, so you’ll often have them forgiven through bankruptcy. Secured debt can also be wiped out, but you’ll be required to give back the property that secured the loan.
3. You Have a Choice Between Bankruptcy Types
With several types of bankruptcy, you’ll have a choice to make. The most common types of bankruptcy are Chapter 13 and Chapter 7. Chapter 7 bankruptcy is often settled in less than a year and most of the debt will be erased. Chapter 13 bankruptcy takes longer to settle -often several years- but you are equipped with a plan to pay back many of your debts. You might speak with a bankruptcy lawyer to understand which option is best for your particular situation before moving forward with one or the other.
4. Your Credit Is Affected for Many Years
As far as credit is concerned, Chapter 13 bankruptcy could be the better option because it will only stay on your credit report for a maximum of seven years. Chapter 7 eliminates all your debts completely, so it will often remain on a credit report for around ten years.