Bankruptcy has a long and storied history in American life. The bankruptcy court process has been the final destination for millions of businesses and individuals since the Revolutionary War. The option of declaring bankruptcy is a social signal that through misfortune, poor judgment or sheer ignorance, your financial life has spun out of control. In recent years, bankruptcy has been in the news more often than not, thanks to the residential real estate boom and crash.
After filing for bankruptcy, a black mark appears on your credit report. This black mark does not disappear until seven or ten years have passed, depending on the particular bankruptcy chapter. A chapter 7 bankruptcy filing stays on a credit report for 10 years counting from the filing date. Chapter 13 bankruptcy remains on the report for only seven years.
The personal and family consequences of filing for bankruptcy may be dire. Marriages have foundered on the rocks of financial errors. Filing for either Chapter 7 or Chapter 13 bankruptcy protection could have devastating consequences if the debtor is homeowner. Bankruptcy stops the collection process on all debt, but the foreclosure process may still continue. Under Chapter 7, all debts are discharged at the end of the court process, but any liens against the house remain outstanding. Lenders can still take your house because of that lien.
This is the worst-case scenario. A bad mark on your credit report tells employers and landlords that you are a bad credit risk. You will likely not be hired or accepted as a tenant on the basis of that report. This can make finding a new situation extremely difficult if not impossible. Moreover, even bankruptcy may not be enough to stop creditors.
Thanks to the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, otherwise known as BAPCPA, filing for Chapter 7 bankruptcy protection is now harder than it was. An income limit is applied to all cases. This usually leads to all but the most dire cases being accepted. If the income limit applies to your case, your filing will be converted into a Chapter 13 filing instead of a Chapter 7.
Unfortunately, Chapter 13 is the last option most debtors want. Under Chapter 13, the debtor must come up with a repayment plan and present it to the bankruptcy court in question. The repayment plan must be completed within five years. Debtors will little income and too much debt cannot possibly fulfill these requirements. Therefore, they are back to square one with no hope of escaping creditors.
It may take years to rebuild a financial life after declaring bankruptcy. The personal and social consequences may reverberate through the coming years. Even after getting back on your feet, the specter of a bankruptcy can still haunt your finances. Getting a handle on your money demons is critical to financial success. Bankruptcy means they have already conquered you once. Next time, make sure that you conquer them.
Go to credit counseling. Go to Debtors Anonymous meetings if you believe the problem is that serious. Creditors will try to make you feel as if you a failure and you will never be able to redeem yourself. That is patently false. Even bankruptcy cannot stop you if your determination is ironclad. Bankruptcy is the beginning, not the end.
Biljana is a online writer, exploring and publishing useful advice on personal finance and bankruptcy matters in USA, Australia and worldwide.