When struggling with debt, Chapter 7 bankruptcy can be a way of relieving the burden.
Filing for bankruptcy can help you reorganize your debts to make them more affordable or wipe them out quickly after paying off what you can. Knowing what to expect from the bankruptcy process can help you evaluate whether it’s the right decision for you and how it can impact you in the long run.
What Happens When You Declare Bankruptcy?
There are many different forms or chapters to the U.S. Bankruptcy Code. Most are specific to various situations, such as Chapter 11, which primarily focuses on corporate entities or those that have debts that exceed the limits allowed by Chapter 13. The two most well-known personal bankruptcy options are Chapter 7 and Chapter 13. For this blog, we’ll be focusing on Chapter 7.
What happens when you file Chapter 7 bankruptcy?
While the process of filing for Chapter 7 bankruptcy is fairly straightforward, there are downstream impacts to consider. For one, Chapter 7 bankruptcy is called liquidation bankruptcy for a reason. You will most likely need to sell off some assets or property in order to discharge your debts. There are both Federal and state exemption rules so you can declare some property as off-limits in the bankruptcy process, so the idea that you’ll lose your home or your vehicle is largely overstated. However, there are definitely other things to take into account.
What happens to my credit when I file Chapter 7 bankruptcy?
This is often the first major concern when considering Chapter 7 bankruptcy, and it is an important one. Your credit will certainly take a hit and your bankruptcy will remain on your credit report for 10 years. However, over time, even with the bankruptcy on your record, if you follow best practices, your credit score will improve in that 10 year period and will eventually give you more financial options.
Are bankruptcy filings public record?
Bankruptcies are considered a public record, but that doesn’t mean everyone’s going to know about it. All bankruptcies are registered in a system known as the Public Access to Court Electronic Records (PACER) system. Anyone can register for PACER and access case information. While the service technically charges $0.10 per page, there’s a $3 limit for a single document, and if your total charges don’t reach $30 in a quarter, the fees are waived.
Another way people might find out about your bankruptcy is if your local newspaper publishes public notices, however this practice is extremely rare for personal bankruptcy cases, unless they are newsworthy for other reasons such as celebrity status.
Finally, employers, landlords and creditors may be able to see on your credit report that you’ve filed bankruptcy when you apply for a job, an apartment lease, a loan or credit card.
Can bankruptcy affect my job or chances for future employment?
An employer can find out about a recent bankruptcy if it runs a federal bankruptcy search or a credit check. In many cases, the public record won’t impact your candidacy for a job. However, if the position involves direct access to financial information or government security clearance, it can be a deal-breaker.
It’s less likely that employers would conduct background checks on current employees, though, and they need your permission to do it. So if you’re not planning to switch jobs, you likely don’t need to worry much about a bankruptcy affecting your employment.