Around 14 percent of U.S. households, around 17 million people, owe more than they own. Many are drowning in debt yet refuse to file for bankruptcy because it seems like such a devastating process.
This fear comes from a lack of information about the process of going bankrupt.
But what happens when you go bankrupt? It might not be as bad as you think. Keep reading to find out.
You Lose Ownership or Get a Payment Plan When Declaring Bankruptcy
The first thing that happens when you declare bankruptcy is that you lose ownership over everything you own. It stops being your property as all your assets will be used to pay off your debt. This includes everything from your house to your vehicles.
There are a couple of items that fall under ‘exempt goods’ such as the things that you require to do your job and some household items such as TVs.
This loss of property only happens if you file Chapter 7 bankruptcy and is a liquidation bankruptcy.
If you file Chapter 13 bankruptcy you won’t need to liquidate any of your property. Rather, your debts will be reshuffled and organized in such a way that you will have 3 to 5 years to pay them off and will only have to pay off a portion.
The best thing you can do is to hire a foreclosure attorney to help you navigate filing bankruptcy — especially if your situation is complex.
Your Credit Score May Take a Knock
If you file for bankruptcy to deal with debt problems it means you’re going back on your original debt agreements and you’re no longer paying them as promised. This doesn’t look good for your credit score.
Again, the severity of the impact on your credit score depends on the type of bankruptcy you file. Chapter 7 bankruptcy will leave you with a bad credit score as your debt is wiped out. On the other hand, with Chapter 13 bankruptcy you’ll still be paying some of your debt off, which is better for your credit score.
What Happens to Your Debt?
So, you’ve filed for bankruptcy for debt relief. That means all of your debt is wiped out…right?
Filing for bankruptcy will eliminate or discharge most of your debts — but not all.
You may struggle to discharge your student loan, for example, and will have to pass a federal test. Other debts that won’t be discharged include tax debts, alimony and child support, and divorce-related debts.
Are You Surprised to Find Out What Happens When You Go Bankrupt?
Now that you know what happens when you go bankrupt, are you surprised by the process and after effects, or is it as you were expecting? Bankruptcy might seem like a daunting process but oftentimes it’s better than drowning in debt.
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