People dealing with financial challenges often consider personal bankruptcy filing as their last resort. But as common as bankruptcy has become over the previous few decades, most still misunderstand the process. These are some facts you should know about the bankruptcy process before filing.
What Happens When Bankruptcy is Filed?
Bankruptcy is a valid solution for those in financial trouble. Individuals are given the option of paying off some or all of their debts – quickly or over a period of time. The details of how the debts are paid off depend on the type of bankruptcy involved.
Once bankruptcy is declared, an automatic stay to stop creditor harassment is granted. Once done, creditors cannot claim money out of your accounts, garnish your wages, or even pursue you for payment. Once the stay is in place, the court grants a period of time for debtors to negotiate with their creditors to determine a plan of action.
How Bankruptcy Filing Affects Credit
When money is borrowed, there are specified terms of repayment. Filing bankruptcy indicates that debts are not being repaid according to that agreement. This delinquency can seriously and negatively impact one’s credit score. Chapter 7 bankruptcy can remain on your credit report for up to a decade, while Chapter 13 bankruptcy will remain on credit reports for up to seven years.
It may be difficult to obtain credit approval post-bankruptcy. However, some lenders will work with people who have filed for bankruptcy, although their terms may not be favorable. After bankruptcy, establishing good credit habits can help credit scores recover.
Will Friends, Neighbors, or Employers Know About the Bankruptcy?
Although bankruptcy filings are officially public records, very few people will access them, especially if they are unaware of the filing. The system that records and documents bankruptcy proceedings is known as PACER (Public Access to Court Electronic Records).
The more likely way someone may learn about bankruptcy is via credit reports, generally accessed by potential employers, landlords, and creditors.
Will a Bankruptcy Filing Affect Employment Prospects?
According to research conducted by CareerBuilder, 3 out of 10 employers run credit report checks on their job applicants. This background check is mainly to ensure the applicant is a good match for the position, especially in the financial or government sector. Those who are in financial distress may have difficulty finding a job handling finance. If the potential employer does not run a credit check – remember, 70% do not – the bankruptcy will not be known.
If there is no plan to change jobs, bankruptcy should not affect employment in any way.
Keep an Eye on The Credit Report
Although there is redemption and recovery from bankruptcy, it is essential to monitor credit scores and reports throughout the process and beyond. Be aware of possible errors or adverse information that could negatively impact the overall score, and dispute any erroneous or resolved entries.
Bankruptcy is a legal and valid way for anyone facing a financial crisis to resolve their situation. If you aren’t sure what to do next, call an experienced bankruptcy attorney, who can answer all questions and help to determine if bankruptcy is the best option.
Richard V. Ellis has helped hundreds of Sarasota residents regain control of their lives and financial freedom through personal bankruptcy. Call today to learn more about how bankruptcy can help you and what you need to do to get started.