The Things They Don't Tell You About Bankruptcy
The Credit Effect
Now that you are thinking about your credit score and how bankruptcy might affect it, it is probably obvious that you are going to take a credit hit. A bankruptcy filing will stay on your credit report for 10 years. If you file Chapter 13 it is supposed to be removed after 7 years, but it can sometimes remain on there for up to 10. So this filing is going to have a very real impact on your ability to get credit for a decade, and because it will be hard to get credit during that time, you won't be earning much additional credit, so after 10 years things will be pretty grim. However, if you are already defaulting on credit cards or unable to pay your bills, then bankruptcy is the lesser of these two evils. Just go into this process fully understanding where things are going to be a decade down the road.
This surprises most everyone who files bankruptcy. Once you petition the court for protection and qualify through the means test, there is a lot of paperwork that you have to pull together. And by "paperwork", I don't mean that your lawyer will tell you what a particular document means, and then you have to sign it in triplicate. What I mean is that you will have to pull together a schedule of your current monthly bills, income, possessions, proof of income for last two months, and many other items. These aren't things that are tough to get or unknown, but it is quite a bit of tedious work. So get ready. You also must pull this together in a timely fashion, so prepare yourself to get everything together quickly and correctly.
Some Thing Stay, Some Things Go
All states have exemptions for possessions. This is typically home, car, clothes, furniture, etc. Basically anything that will help you to keep working and earning a paycheck. Every state in different, but every state has them. Your possessions that are not exempt will be assessed and sold, and the proceeds will go to pay down your debt. This might be an obvious process now that I mention it, but I'm constantly surprised by people who are surprised by this. In short, you get to keep some things, but you don't get to keep everything.
It's Called "Bankruptcy Protection"
Now for some good news. When you are protected under a bankruptcy filing, you are assigned a trustee. Your trustee serves several functions, such as assessing the value of your possessions and selling them at auction. What they also do is stand between you and your creditors. If you file for Chapter 13, you will make your payment to your trustee, who will then make payments to your creditors. And for the big bonus, your creditors are not allowed to contact you while you have bankruptcy protection.
All in all, filing for bankruptcy might be your best option for many reasons, but keep in mind the full scope of what lays in front of you before making any decision.
Mitch Jenkins is a Jupiter Bankruptcy Attorney, and writes often about bankruptcy issues.
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