If you declare bankruptcy, it can have significant impacts on your financial situation, credit score, and future borrowing ability. Here are some of the things that can happen:
- Automatic stay: Once you file for bankruptcy, an automatic stay goes into effect, which stops most creditors from continuing to collect debts or pursue legal action against you.
- Property liquidation: Depending on the type of bankruptcy you file, you may need to sell off some of your assets to pay off creditors. In Chapter 7 bankruptcy, for example, non-exempt assets are sold to pay off debts. However, some assets, such as your home, car, and retirement accounts, may be exempt under state or federal law.
- Credit score impact: Bankruptcy will have a negative impact on your credit score, and the bankruptcy filing will remain on your credit report for seven to ten years, depending on the type of bankruptcy filed.
- Future borrowing ability: After filing for bankruptcy, it may be difficult to obtain credit for a period of time, as lenders may view you as a higher risk borrower. However, with responsible financial management, it is possible to rebuild your credit over time.
- Debt discharge: Depending on the type of bankruptcy you file, some or all of your debts may be discharged, meaning you are no longer legally obligated to pay them.
It’s important to consult with a bankruptcy attorney to fully understand the implications of filing for bankruptcy and to determine whether it is the right option for your financial situation.