10 Things You need to Know about Bankruptcy

Written by jessica Alba

Maybe you have gotten in over your head with multiple credit cards; maybe you have recently lost your job, due to the economic downturn; maybe someone in your family has suffered a catastrophic accident or illness. Whatever the case may be, you now find yourself in desperate financial trouble. You can only see one way out. But, before you file, there are 10 things you need to know about bankruptcy.

1. Your Credit will be Damaged

When you file bankruptcy, you can have a negative credit record for 7-10 years, depending on how you file. For example, if you file chapter 7, your bankruptcy can remain on the books for up to 10 years. Ouch! However, if you file chapter 13, and set up a repayment plan for the value of the items you still need to finish paying for, you credit rating can be swept clean after 7 years.

2. You Job should not be Affected

In most cases, you job will not be adversely affected, if you file for bankruptcy. Your employer does not have to even know about your personal financial affairs. Even if he/she finds out you are having financial troubles, it would be discriminatory to fire you, as long as you are still doing your job. However, if you are applying for jobs, your potential employer has a right to check out your credit rating, to determine if you are a financially responsible individual. So, you may want to take that into consideration before filing for bankruptcy.

3. You might Lose your Home

Just because you file for bankruptcy does not mean you will lose your home. However, it depends on the laws in your particular state. Also, the value of your home balanced against what you still owe, and whether you are behind in your payments, are all taken into consideration. So, check with your lawyer and state bankruptcy laws.

4. Creditors do not want your Personal Belongings

When you file for bankruptcy, creditors do not usually go after your personal belongings. The fact is, you stuff is probably not worth the trouble. It would be much like trying to recoup your debt by having a garage sale. It just is not going to happen. However, some of the big ticket items that depreciate slowly, and for which you still owe, may be considered.

5. You can Still Buy a House Some Day

Although bankruptcy will delay the dream of owning a home for about 4 years, you will probably be considered for a loan, depending on your current credit rating post bankruptcy. In other words, if your income is enough to support a house payment, you may still get a loan. Alternatively, you can also try going through a finance company. But, the interest rate and fees are very likely to be higher than a traditional home loan.

6. Your Spouse may have to File

In most states, your spouse will not be affected by your bankruptcy, unless loans and credit cards are co-signed. However, in some states that have community property laws, debt is also community debt. In other words, the debt of a spouse will be your debt too. In that case, bankruptcy will adversely affect credit for both the husband and the wife, even if only one of them was responsible for poor financial choices.

7. You have to List ALL of your Creditors

If you file for bankruptcy, you will have to list all of the creditors to whom you owe money. You cannot keep something out of the proceedings. For example, if you have a brand new car that is likely to be sold to satisfy a creditor, you cannot keep it separate from the bankruptcy. But, you can continue to pay the car payments, so the creditors are not affected by the legal action. Then, you will be able to keep the vehicle, because they will not be seeking reimbursement for the debt.

8. You can Cancel a Chapter 13

If you have filed a chapter 13, you can cancel at any time, without permission of the court. But, if it has been converted to a chapter 7, or started out as a chapter 7, you will have to convince a judge that it will benefit your creditors to cancel the action. It will be up the person on the bench, not you. But, it can be done, under certain circumstances.

9. Filing Bankruptcy is not Difficult

Most people probably worry that the bankruptcy process will be a long hard process. In actuality, your petition will be filed within days. At that time, creditors cannot bug you any longer. So, even if all the legal details are not ironed out, you will have respite almost immediately.

10. Filing Bankruptcy will Cost some Money

Although it is not astronomically expensive, filing bankruptcy does cost money. You will need to pay whatever court filing fees are required. Of course, you will have to pay for the services of your lawyer. However, if you are in enough financial trouble to need a bankruptcy action, it will still be cheaper than paying off all of the creditors.

So, now you know some important issues associated with filing for bankruptcy. Hopefully, it will help you make an informed decision. Is bankruptcy really your way out of financial troubles?