Don't let errors on your Credit Report hurt your future opportunities. Learn More

Home / Negative Items / What Happens When I File For Bankruptcy

What Happens When I File For Bankruptcy

  • Updated: July 24, 2024
  • Filing for bankruptcy significantly impacts your finances and can drastically lower your credit score.
  • Discharging certain debts may relieve some financial stress, but understanding the long-term effects is crucial.
  • To navigate this process and improve your credit post-bankruptcy, reach out to The Credit Pros for personalized support and options.

Pull your 3-bureau report and see how you can identify and remove errors on your report.

Get Help From a Credit Expert

•89 people started their credit fight today - join them!

BBB A+ rating credit repair company

Related content: How Do I File Chapter 7 Bankruptcy (By Myself or With a Lawyer)

When you file for bankruptcy, it affects your finances and credit score in a big way. The court will review your assets and debts, then discharge certain debts, relieving you from paying them. But be aware, this also means your credit score can drop a lot, making it harder to borrow in the future.

You'll need to list all your debts, assets, and financial transactions. Creditors will get notified, and you might have to sell some assets or set up a repayment plan, depending on your case. Bankruptcy will stay on your credit report for seven to ten years, impacting your ability to get loans, mortgages, and even some jobs.

To get through this tough process, call The Credit Pros. We'll give you a no-pressure consultation to go over your complete 3-bureau credit report and explain your options. Whether you need help preparing for bankruptcy or want to explore other options, we offer personalized support to manage your financial situation.

On This Page:

    What Happens Immediately After Filing For Bankruptcy

    After filing for bankruptcy, you can expect several key events to unfold:

    1. Immediate protection: You benefit from an automatic stay that stops creditor actions like calls, lawsuits, and wage garnishments.

    2. Case assignment: You receive a case number, and a trustee is appointed to oversee your bankruptcy.

    3. Document submission: You need to provide your financial records to the trustee.

    4. Creditors' meeting: Within 30-45 days, you attend a meeting to discuss your finances under oath.

    5. Asset review: In Chapter 7 cases, the trustee may liquidate your non-exempt assets. In Chapter 13 cases, the trustee administers your repayment plan.

    6. Credit counseling: You are required to complete credit counseling sessions.

    7. Monthly reporting: You must file income and expense reports regularly.

    8. Tax information: You need to provide necessary tax details to the trustee.

    The process typically lasts 4-6 months for Chapter 7 or 3-5 years for Chapter 13. Finally, while bankruptcy offers a fresh start, it significantly impacts your credit score and financial options, preparing you for potential lifestyle changes and challenges in obtaining loans or housing.

    How Does Bankruptcy Affect My Credit Score And For How Long

    Bankruptcy severely impacts your credit score. You can expect a drop of 100-240 points, depending on your starting score.

    Chapter 7 bankruptcy stays on your credit report for 10 years, while Chapter 13 remains for 7 years. During this period, your creditworthiness is significantly reduced.

    Initially, you will face challenges obtaining loans, credit cards, and even housing, as lenders view you as a high-risk borrower.

    To rebuild your credit post-bankruptcy, you should:

    • Pay all bills on time
    • Use a secured credit card responsibly
    • Keep credit utilization low
    • Monitor your credit reports for errors

    Consider alternatives to bankruptcy, such as credit counseling or debt consolidation. Weigh the trade-offs between debt relief and long-term credit damage.

    Big picture, bankruptcy offers you a fresh start. With consistent, responsible financial management, you can gradually improve your credit score and regain financial stability.

    Which Debts Can Be Discharged Through Bankruptcy

    You can discharge many unsecured debts through bankruptcy, giving you a fresh start. Common dischargeable debts include:

    • Credit card balances
    • Medical bills
    • Personal loans
    • Utility arrears
    • Payday loans
    • Old income tax debt (if over 3 years old)

    However, some debts can't be wiped out:

    • Child support
    • Alimony
    • Recent tax debts
    • Most student loans
    • Court-ordered restitution

    Secured debts like mortgages and car loans are treated differently. While the debt may be discharged, lenders can still repossess the property.

    Chapter 7 bankruptcy liquidates assets to pay creditors and discharges remaining eligible debts. Chapter 13 creates a 3-5 year repayment plan. Both can provide debt relief, but the right choice depends on your specific financial situation.

    We recommend consulting a bankruptcy attorney to evaluate which debts you can discharge and determine the best path forward based on your circumstances and goals. They can guide you through the complex process and help you make informed decisions for your financial future.

    Overall, understanding which debts can be discharged through bankruptcy will empower you to take the right steps towards financial stability.

    What'S The Difference Between Chapter 7 And Chapter 13 Bankruptcy

    Chapter 7 and Chapter 13 bankruptcies offer distinct paths for debt relief.

    In Chapter 7, known as "liquidation" bankruptcy, you can:

    • Eliminate most unsecured debts within 4-6 months
    • Pass a means test based on income
    • Possibly sell non-exempt assets to repay creditors
    • Achieve a quicker "fresh start"
    • Best if you have low income and mostly unsecured debts

    With Chapter 13, or "reorganization" bankruptcy, you:

    • Create a 3-5 year repayment plan
    • Keep your assets and possibly save your home from foreclosure
    • Catch up on secured debts while discharging some unsecured debts
    • Benefit from a longer but more flexible process
    • Fit best if you have regular income and want to retain property

    Key differences include:

    • Debt elimination vs. repayment plan
    • Asset liquidation vs. asset retention
    • Eligibility based on income vs. debt limits
    • Duration of process (months vs. years)
    • Impact on credit score and future borrowing ability

    Your specific financial situation, types of debt, income, and assets will determine which option is best for you. Consult a bankruptcy attorney to evaluate your unique circumstances and make an informed decision.

    As a final point, understanding these differences helps you choose the right path for financial relief and stability.

    Inaccuracies hurting your Credit Score?
    Securely review your full 3-bureau Credit Report (with a real expert).

    By clicking ‘Get Started’ I agree by electronic signature to: (1) be contacted by The Credit Pros by a live agent, artificial or prerecorded voice, and SMS text at my residential or cellular number, dialed manually or by autodialer even if my phone number is on a do-not-call registry (consent to be contacted is not a condition to purchase services); and (2) the Privacy Policy and Terms of Use.

    Can I Keep My House And Car If I File For Bankruptcy

    You can potentially keep your house and car if you file for bankruptcy, but it depends on several factors:

    • Equity: Calculate the difference between your property's value and outstanding loans.

    • Exemptions: Check your state's bankruptcy exemptions for homes and vehicles.

    • Payment status: Ensure you're current on mortgage and car loan payments.

    • Bankruptcy type: Chapter 7 and Chapter 13 offer different options.

    In Chapter 7:
    • Use exemptions to protect equity in your home and car.
    • Continue making payments on secured loans.
    • Sign reaffirmation agreements to keep financed property.

    In Chapter 13:
    • Include missed payments in your repayment plan.
    • Pay mortgage directly, while car payments go through the trustee.

    To retain your assets:
    • Stay current on payments.
    • Understand your state's exemption limits.
    • Consider a consumer proposal as an alternative to bankruptcy.

    To put it simply, if you stay current on your payments and understand your state's exemptions, you can potentially keep your house and car when filing for bankruptcy. Consult a licensed insolvency trustee or bankruptcy attorney to evaluate your specific situation and explore all options.

    What Assets Are Exempt From Liquidation In Bankruptcy

    You can protect certain assets from liquidation in bankruptcy. These "exempt" assets help you maintain a basic standard of living. In California, key exemptions include:

    • Homestead: Protects equity in your primary residence (limits vary based on age, marital status, disability)
    • Vehicle: Safeguards a car up to a certain equity value
    • Personal property: Covers clothing, household goods, and essential items
    • Retirement accounts: Typically shields 401(k)s, IRAs, and pensions
    • Wildcard: Allows you to protect additional property of your choice

    Federal exemptions may offer different protections. It's crucial that you disclose all assets honestly. Attempting to hide or transfer non-exempt assets can lead to serious consequences.

    Non-exempt assets that may be liquidated include:

    • Valuable art and collectibles
    • Luxury vehicles
    • Non-retirement investments
    • Excess cash
    • Second homes
    • High-equity properties
    • Expensive jewelry

    Most Chapter 7 filers keep all their property through exemptions. A trustee often ignores low-value items due to sale costs. Timing your filing when bank accounts are low (around $100 total) can help protect cash assets.

    In short, knowing what assets are exempt from liquidation in bankruptcy helps you keep essential items and maintain stability. Be honest in your disclosures, and use exemptions wisely to protect your property.

    How Long Does The Bankruptcy Process Typically Take

    The bankruptcy process typically takes 4-6 months for Chapter 7 and 3-5 years for Chapter 13.

    For Chapter 7 (Liquidation):
    • Filing to discharge: 4-6 months
    • Credit counseling: Before filing
    • Petition submission: 10 days to complete
    • Creditors' meeting: About 1 month after filing
    • Discharge decision: 6-8 weeks after creditors' meeting

    For Chapter 13 (Repayment Plan):
    • Total duration: 3-5 years
    • Initial process similar to Chapter 7
    • Repayment plan: 3-5 years to complete

    Factors affecting the timeline include:
    • Case complexity
    • Asset liquidation needs
    • Creditor objections
    • Completion of required courses
    • Document submission speed

    You can expedite the process by:
    • Gathering all necessary documents promptly
    • Completing required courses quickly
    • Responding to trustee requests promptly
    • Avoiding delays in paperwork submission

    To finish, remember that bankruptcy impacts your credit for 6 years. We recommend consulting a bankruptcy attorney to help you navigate this complex process and make informed financial decisions.

    Will Bankruptcy Stop Creditor Harassment And Collection Efforts

    Yes, filing for bankruptcy will stop creditor harassment and collection efforts. When you file for bankruptcy, an automatic stay immediately takes effect, which:

    • Halts all debt collection activities
    • Stops phone calls, letters, and legal actions
    • Prevents wage garnishments and repossessions

    The automatic stay applies to both Chapter 7 and Chapter 13 bankruptcies, providing you with instant relief from creditor pressure.

    After filing, creditors must cease contacting you directly and can only communicate through your bankruptcy attorney. If a creditor violates the automatic stay, they may face legal consequences and financial penalties.

    Beyond the automatic stay, bankruptcy offers long-term protection:

    • Chapter 7 typically discharges unsecured debts in 3-4 months
    • Chapter 13 restructures debts over 3-5 years

    Once your debts are discharged, creditors can never attempt to collect on them again. If harassment continues post-discharge, you have legal recourse and may be entitled to compensation.

    In essence, bankruptcy will stop creditor harassment and collection efforts, offering you significant relief and a chance to address your financial situation. We advise consulting a bankruptcy attorney to fully understand your rights and options.

    Inaccuracies hurting your Credit Score?
    Securely review your full 3-bureau Credit Report (with a real expert).

    By clicking ‘Get Started’ I agree by electronic signature to: (1) be contacted by The Credit Pros by a live agent, artificial or prerecorded voice, and SMS text at my residential or cellular number, dialed manually or by autodialer even if my phone number is on a do-not-call registry (consent to be contacted is not a condition to purchase services); and (2) the Privacy Policy and Terms of Use.

    Can I File For Bankruptcy Without A Lawyer

    Yes, you can file for bankruptcy without a lawyer, but it's risky. Filing "pro se" (representing yourself) is legal, but not recommended for most people. Here's why:

    • Complexity: Bankruptcy laws are intricate. If you make mistakes, your case might get dismissed or your debt might remain.

    • Multiple options: There are six types of bankruptcy. Choosing the wrong one could cost you.

    • Potential property loss: Without proper knowledge, you might lose assets you could have protected.

    • Long-term consequences: Bankruptcy affects your credit for years. An attorney helps minimize negative impacts.

    • Time-consuming: Learning bankruptcy laws and procedures takes significant effort.

    • Court expectations: You're held to the same standards as lawyers when filing pro se.

    If you have a simple Chapter 7 case, self-filing might work if you:

    • Have below-median income
    • Own little property
    • Have mostly unsecured debts (credit cards, medical bills)
    • Face no fraud allegations

    However, for Chapter 13 or complex cases, lawyer assistance is crucial. They can:

    • Assess alternatives to bankruptcy
    • Choose the right bankruptcy type
    • Protect your assets
    • Navigate court procedures
    • Handle creditor objections

    To wrap up, we advise you to consult a bankruptcy attorney. Many offer free initial consultations to evaluate your situation.

    What Are The Eligibility Requirements For Filing Bankruptcy

    To file for bankruptcy, you need to meet specific eligibility requirements:

    First, you must complete an approved credit counseling course within 180 days before filing.

    For Chapter 7, you must pass a means test which compares your income to your state's median. If your income is above the median, additional calculations will determine your eligibility.

    For Chapter 13, your total secured and unsecured debts must be under $2,750,000. You also need a steady income to fund a 3-5 year repayment plan.

    You must submit your federal and state tax returns for the past four years.

    You need to wait specified periods between bankruptcy filings, such as 8 years for Chapter 7 and 2-4 years for Chapter 13.

    Only individuals and married couples can file for Chapter 7 or 13. Corporations and partnerships only qualify for Chapter 7.

    For Chapter 7, the means test primarily applies to consumer debts.

    If a prior case was dismissed within 180 days for failing to comply with court orders, you are not eligible.

    On the whole, you should consult a bankruptcy attorney to assess your situation and determine the best option for your financial circumstances.

    How Often Can Someone File For Bankruptcy

    You can file for bankruptcy multiple times, but waiting periods apply between filings if you received a discharge. The timeframes vary based on the types of bankruptcy:

    • Chapter 7 to Chapter 7: 8 years
    • Chapter 13 to Chapter 13: 2 years
    • Chapter 7 to Chapter 13: 4 years
    • Chapter 13 to Chapter 7: 6 years (with exceptions)

    These periods start from the filing date of your previous bankruptcy, not the discharge date. There's no limit on how often you can file overall.

    If your previous case was dismissed without a discharge, you can usually file again immediately. However, the court may impose a 180-day waiting period if you violated orders or requested dismissal after a creditor sought stay relief.

    While you can file repeatedly, doing so may hurt your credit and make it harder to obtain future bankruptcy discharges. Courts can also bar serial filers they deem abusive.

    Even if you're ineligible for discharge, you may still file to access other bankruptcy protections like the automatic stay. This can temporarily halt foreclosures, repossessions, and collections.

    Bottom line: Consult a bankruptcy attorney to understand your options and ensure you meet all requirements before refiling. They can help you navigate the complex rules and maximize your chances of a successful filing.

    Below is a list of related content worth checking out:

    Privacy and Cookies
    We use cookies on our website. Your interactions and personal data may be collected on our websites by us and our partners in accordance with our Privacy Policy and Terms & Conditions

    Accept