The Long Term Effects of Bankruptcy

Sometimes debt gets out of hand.

The accumulation of debt is increasing every year, due to any number of reasons including higher interest rates, overconsumption, and emergency spending. This can lead to a high pressure situation where you suddenly see more money leaving your account, than is going in.

Some people can find it hard to cope up with the pressure – the desire to make ends meet and also purchase nice things.

When you are put into a situation where in debts are extremely high and are continuously growing, it is possible to look at filing for bankruptcy, in order to resolve all debt issues you have once and for all.

Although a bankruptcy filing is not recommended by financial experts as the best answer to all your debt troubles, it can help you regain your confidence and eradicate any financial anxiety that you have with your debts. It can also erase your existing debts.

If you have exploited all other options, such as debt management (i.e. debt consolidation), and you wish to continue the route of declaring bankruptcy, it is important to understand how it all works.

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What is bankruptcy and how does it work?

Bankruptcy is a legal process of filing a report to the court, stating that you are unable to come into terms and meet those agreements; meaning, you are unable to fulfil your duty to repay any personal loans or credit card debt that you may have.

All your present assets (house, real estate, car, bonds, stocks, jewels, etc.) are evaluated and reassessed. These personal assets that belong to you will determine the repayment plan of your current debts.

To put it simply, declaring bankruptcy involves exchanging all of the assets and properties that you have at present, into cash. This cash then repays all the existing obligations you have under the approval of the jurisdiction courts.

Chapter 7 vs. 13 Bankruptcy

There are several different types of bankruptcy, each of which is named after the relevant chapter of the Bankruptcy Code:

  • Chapter 7 bankruptcy is a type of bankruptcy that is often called “liquidation” bankruptcy, because it involves the sale of the debtor’s assets in order to pay off creditors. This type of bankruptcy is available to both individuals and businesses. In a Chapter 7 bankruptcy, the debtor’s assets are sold by a bankruptcy trustee, and the proceeds are used to pay off the debtor’s creditors. After the sale of assets and payment of creditors, the debtor is typically discharged from most of their remaining debts.
  • Chapter 13 bankruptcy, on the other hand, is a type of bankruptcy that is available only to individuals, not businesses. Chapter 13 bankruptcy is often called “reorganization” bankruptcy, because it involves the creation of a repayment plan that allows the debtor to repay their debts over a period of time, typically three to five years. In a Chapter 13 bankruptcy, the debtor proposes a repayment plan to the bankruptcy court, and the court either approves or rejects the plan. If the plan is approved, the debtor makes payments to the bankruptcy trustee, who then distributes the funds to the debtor’s creditors according to the terms of the repayment plan.

Overall, the key difference between Chapter 7 and Chapter 13 bankruptcy is the type of relief they provide. Chapter 7 bankruptcy involves the liquidation of assets and the discharge of most debts, while Chapter 13 bankruptcy involves the creation of a repayment plan and the repayment of at least some of the debtor’s debts.

Options for eliminating debts

Before you go down the path of filing for bankruptcy, ensure that you have explored all other options, including asking a professional for help in structuring a debt management plan.

There are many services, institutions, organizations and techniques available to assist you in getting out of trouble.

These options are presented to each and every consumer in the U.S. which should help consumers deal with their financial and debt obligations in a more mature and convenient approach.

Choosing which alternative you should take up is quite confusing, as it involves a lot of details and varying processes. The same thing that works for your friend, may not apply, or work for you.

You are the one in control, and the one that must determine which debt relief program or options works best for you.

How to file for personal debt bankruptcy?

When you choose to file chapter 7 (i.e. the bankruptcy code), there are certain steps that must be taken.

First you have to decide if you need a bankruptcy attorney or not. This will depend on how complex your situation is.

The next step is to find and print the required bankruptcy forms, found on the Unites States courts webpage.

You can watch YouTube, or find many helpful website to assist you with filling in and submitting your form.

Now you just submit those forms, pay the required fee and you should be good to go.

The cost of filing for bankruptcy will mainly depending on if you need an attorney or not. According to, the total cost of filing for Chapter 7 is $38 (without an attorney), or between $1,000 and $3,500 (with an attorney).

However, fees can be waived depending on how much you earn.

What are the advantages and disadvantages of bankruptcy?


  • You are no longer required to make repayments to your creditors.
  • All existing debts you have are paid out; you have a negative debt amount.
  • You get the chance to renew your finances and start a fresh life.


  • You are liable to make regular contributions.
  • Assets you have will be liquidated.
  • Some debts require still payments, especially unsecured debts.
  • Your credit score will be affected. Meaning things like your car insurance rates will likely increase.
  • Taking out a future loan requires more time to get approved, and you can be turned down from making it.

Even though your credit standing may be tarnished, you can still apply for (and receive) a secured credit card, which is designed for a person rebuilding their credit rating.

10 Facts about Bankruptcy

Knowledge is important when undertaking new paths and new techniques. It is always good to come prepared to counteract all possible happenings.

Readiness is key to every successful course of action. The following are some detailed information about the bankruptcy method.

  1. Once you have been approved by the judicial court to file for bankruptcy, all existing debts you have will be eradicated at the start of the process. (but see Myth 1 below)
  2. Repossessions of your assets can be terminated. An example of this is your car or home; you can stop the bank or your creditor from getting your assets when you declare bankruptcy. You even have the possibility to lower down your repayment amount.
  3. No need to worry about going public. It’s unlikely that if you declare bankruptcy it will be published in the paper, however, bankruptcy cases are available for public viewing.
  4. Although 95% of your debts are settled, there are still some debts (unsecured debts like student loans and credit cards) that can’t be solved.
  5. Discharge is done after a year (12 months), meaning, it is dated under the time you filed for bankruptcy.
  6. Credit scores will be affected.
  7. It can be difficult to get approved by loan companies down the track.
  8. Filing for bankruptcy can stop wage garnishment. This is especially useful if your only just getting by.
  9. Repairing your credit report can take up to 10 years or more.
  10. Filing for one entails minimal effort.

Filing bankruptcy myths and facts

Still unsure about bankruptcy? Here we look at some of the myths associated with your filing:

Myth # 1: 100% of your debts is wiped out.

Fact: As much as we want this to happen, this is not entirely true. While a good 90-95% of our debts are pardoned, there are still debts which bankruptcy can’t resolve. These are unsecured debts in the form of credit card bills, payday loans and student loans amongst others.

Myth # 2: 100% of your assets will be reclaimed.

Fact: Not true. Certain states have rules when it comes to recalling a debtor’s asset. There is a limit to which the government can repossess an individual’s personal assets.

Myth # 3: Permanent credit rating damage.

Fact: Though it can greatly affect your credit score for a long time, filing for bankruptcy can ultimately help you regain a better rating.

Myth # 4: Future debt accumulation is impossible.

Fact: Absolutely false. Yes, bankruptcy can clear out most of your debts but it does not hinder you from making more debts in the future. Once the timeframe ends and you are released from obtaining loans and purchasing anything, the debt cycle continues.

Myth # 5: Filing for bankruptcy is a public knowledge.

Fact: False. When you declare that you are bankrupt, you are not publicized by the media; unless you are a prominent citizen in the elite society. If you are worried about getting humiliated is not necessary.

However, records of bankruptcy are in the public domain, so that information is still available.

Myth # 6: Filing for one can take up a very long time.

Fact: Not true. The process and court hearing takes up a very short time, you can finish filing in a matter of 5 days.

Myth # 7: Declaring bankruptcy can only be done once.

Fact: False. You can file more than once, although the time interval takes up a much longer time since the new bankruptcy law has been approved.


Even though bankruptcy is considered as a last resort to resolve debts and improve your fiscal standing, it can, in some occasions, be best solution to your problem.

It can help you stop the debt collectors banging at your door, and it provides you with an opportunity to start all over again.

Bankruptcy can also provide you with a massive learning experience, bringing you the the realisation that debts can easily get out of control. Eliminate them as soon as possible and you will never have to loose sleep over money again.

Summary of steps to a successful personal debt bankruptcy

  1. Be sure that you really need to declare bankruptcy
  2. Determine which type of bankruptcy you wish to file
  3. Do your research
  4. Seek out the help of professional bankruptcy experts
  5. Submit all necessary information required, like financial statements, assets and debt statements
  6. Stop using your credit cards
  7. Discontinue all payments you make to your creditors or credit company

Declaring for bankruptcy can be necessary at times when you really need to, when you are left with no choice but to adhere to this method. Although this method entails a lot of risk, but the effect will give you control to regain your financial standing once again.

2 thoughts on “The Long Term Effects of Bankruptcy”

  1. There is a moral component too, I think. When you borrow money you are entering into a contract where you promise to repay the lender. When you file bankruptcy you are breaking that promise. It is legal and so you can make the argument that the lender should have understood the risk of you defaulting and undoubtedly has factored that into their rates as a business expense. But from the perspective of the borrower, you are still breaking your word. That isn’t something to be taken lightly as it impacts your personal integrity. And to me that is something not to be done unless there is no other option, which is often the case.


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