Bankruptcy and What Happens With Your Credit Score
By Alexandra Scicchitano
Bankruptcy is the last thing anyone wants to happen to them. There are many kinds of bankruptcies that can be filed depending on the situation, so we will be talking about all of them.
According to Credit Karma, bankruptcy is a special legal proceeding you can use to reorganize or get rid of your debt, depending on your financial situation.
There are multiple chapters of bankruptcy. Altogether, there are six chapters and they are: Chapter 7, Chapter 9, Chapter 11, Chapter 12, Chapter 13 and Chapter 15 that can be filed for.
Chapter 7 Bankruptcy
Chapter 7 bankruptcy also known as liquidation or straight bankruptcy is “the most common type of bankruptcy for individuals,” according to Ramsey.com.
In this instance, majority of your assets, for example, house, car and belongings will be sold off to pay off your creditors. Unsecured debt, like credit cards or medical bills, is usually erased, but other types of debt, like student loans and taxes will not be. In some states, necessities can possible still be held onto, like house, car and retirement accounts.
Not everyone can file for this kind of bankruptcy. It can only be filed if its been deemed that you don’t make enough money to sustain yourself and also pay back debts. This bankruptcy stays on your credit report for 10 years and you can’t file again for this type of bankruptcy until after eight years has already passed.
Anyone who also files for this type of bankruptcy has to have a meeting with the creditors they owe money to and they can ask any kinds of questions about what happened with your finances and your debt.
Chapter 9 Bankruptcy
Chapter 9 bankruptcy is a different kind of bankruptcy not used for individuals but rather for towns, cities and school districts to organize and pay back any debt they owe. According to All Law.com, “Chapter 9 is a reorganization bankruptcy that allows the municipality to draft a plan to reorganize its debt and repay creditors, often at a discount. It gives cities, towns, counties, and other public districts protection from creditors while allowing the municipality to pay back debt through a repayment plan.”
Chapter 11 Bankruptcy
Chapter 11 bankruptcy is used for businesses and corporations. It’s the equivalent of Chapter 13 bankruptcy but for businesses. It makes it so that they continue to operate their business while paying their debt on a payment plan approved by the courts. Most individuals, except celebrities, don’t have to worry about this bankruptcy because they don’t have millions in properties or in debt.
Chapter 12 Bankruptcy
According to Nolo.com, Chapter 12 bankruptcy is a relatively new addition to bankruptcy laws. It allows “family farmers” and “family fisherman” to restructure their finances and avoid liquidation or foreclosure. For this bankruptcy, it is more flexible and has higher debt limits.
Chapter 13 Bankruptcy
Unlike Chapter 7 bankruptcy which can forgive a lot of debt, Chapter 13 bankruptcy only reorganizes it. Instead of possessing any assets, the courts approve a payment plan over the time of three to five years to pay it all off fully. According to Ramsey.com, the monthly payment amounts depend on your income and the amount of debt you have. But the court also gets to put you on a strict budget and check all your spending.
When filing for this bankruptcy, the unsecured debt has to be less than $419,275 and secured debt is less than $1,257,850 and up to date on any tax filings. This bankruptcy stays on a credit report for seven years and it can’t be filed for at least two years.
Chapter 15 Bankruptcy
According to the balance.com, Chapter 15 bankruptcy allows foreign nationals to file for bankruptcy in the U.S. bankruptcy courts if they have assets, property, or business in multiple countries, including the United States.
Clearly, not all of these apply to you, as an individual. But just knowing that there are different kinds of bankruptcy can help you understand more clearly which one applies to you and why.
Filing for bankruptcy should really only be a last resort. The lasting impact it will have on your credit can be pretty harsh depending on how high or low your credit was beforehand.
Bankruptcy also is listed on your public record for up to 10 years, depending on which chapter you’ve filed for. That can have a huge impact on what loans, credit cards and interest rates you can take out. Once you also file for bankruptcy, you can’t file again for another eight years.
If your credit score takes hits because of bankruptcy, let D.A.L.S. Credit Solutions & Notary help you bring your score up. Let us help you take control of your finances again so you don’t have to file for bankruptcy again.