FAQs: the impacts of declaring bankruptcy
Whether to declare bankruptcy–and which type of bankruptcy to declare–is an important decision that should not be taken lightly. We have previously provided some resources on the main distinctions between Chapter 7 and Chapter 13. Today, we will answer some frequently asked questions surrounding the bankruptcy process and its outcome.
Will declaring bankruptcy affect my credit?
Yes. Bankruptcy effectively destroys your credit, and it remains on your credit report for up to 10 years. It can be very difficult for you to secure a mortgage or a loan during this time. You will also lose all of your current credit cards when you file for bankruptcy. While it may be possible to get new credit cards while the bankruptcy is still on your credit report, you can expect these to be at a high interest rate.
Am I still responsible for child support/alimony payments after I declarebankruptcy?
Yes. While bankruptcy can provide you a clean slate with many of your financial responsibilities, legally mandated payments to your children or ex-spouse are not included on this list. The only way to be relieved of such payments is through a court order.
I have student loan debt. Can bankruptcy help with that?
Unfortunately, in most cases it can’t. The one possible avenue for bankruptcy to alleviate student debt is if you can demonstrate that repaying the loan would cause “undue hardship.” A bankruptcy attorney can help you determine whether you qualify.
Does bankruptcy protect me from bill collectors and creditors?
Yes. Once you file for bankruptcy, you receive an “automatic stay,” which stops collection agencies from taking legal action against you. The automatic stay can provide important benefits, such as preventing your utilities from being turned off in the middle of winter, or preventing your house from being foreclosed on.
It is important to carefully weigh the pros and cons of filing for bankruptcy–as well as the implications of choosing Chapter 7 or Chapter 13. An experienced bankruptcy attorney can be a valuable resource in making this decision.