What Happens When You File Personal Bankruptcy
The filing of a bankruptcy has the effect of a court order, stopping every one of your creditors from taking any action to collect money. Creditors may not file or pursue lawsuits, foreclose on your home, repossess your car, or even call or write to you without the permission of the bankruptcy court. Once your case is finished, any debts that are discharged by your bankruptcy are no longer collectable. Discharged creditors are prevented from harassing you for payment. Mortgages and car loans remain in place, though, and you must keep making payments if you want to keep the property.
If you choose the right form of bankruptcy, you should have no worries about losing your house, car or other property. A Chapter 7 may be right for you if you are current on mortgage and car payments and if the equity in your house, or the value of your car or other property, is not above certain limits set by law. If you are behind on your mortgage or car payments, or the equity in your house or the value of your car or other property is very large, you may need to consider Chapter 13. Under Chapter 13, you remain in control of all your property while paying back some of your debts over time. Chapter 13 allows you to catch up on mortgage or car payments.
Bankruptcy is a negative on your credit report, as are judgments, foreclosures, and repossessions. The good news is that bankruptcy does not permanently ruin your credit rating, and many people who file bankruptcy can buy houses and cars, and obtain loans and credit cards. By law, credit reporting agencies can carry a bankruptcy on your credit report for up to ten years, during which time you may pay higher interest rates for some types of loans, or be denied credit.
