How Does Bankruptcy Affect You Financially Now & in the Future?

How Does Bankruptcy Affect You Financially Now & in the Future?
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If you’ve decided to file for bankruptcy, chances are that you’re at the end of your rope. Creditors are likely hounding you for payments, accounts have charged off and are in collections and your home may even be in danger of foreclosure. Bankruptcy will give you a fresh financial start. However, before you call a bankruptcy attorney, you should understand how bankruptcy will affect you financially — both now and in the future.


Bankruptcy is a legal process by which you can eliminate all of your debts or restructure them so that making monthly payments is possible. Filing for bankruptcy requires going to court.


There are two main types of bankruptcies for consumers. Under a Chapter 7 bankruptcy, a trustee appointed by the court may seize and sell some of your assets to pay back your creditors. Under a Chapter 13 bankruptcy, however, you get to keep all of your property. However, you will also need to make monthly payments on your debts for up to five years. The repayment amount is based on your income.

Immediate Effects

Filing for bankruptcy will provide you with immediate financial relief, regardless of which type of bankruptcy you’re filing for. That’s because when you initially file for bankruptcy, all of your creditors must immediately stop collection efforts. While a bankruptcy procedure can drag on for as long as six months, during that time you will be free from harassing calls from creditors. Once the bankruptcy becomes final, your slate will be wiped clean so you will be free from your financial obligations, except for those you choose to exempt from the bankruptcy, like car or house payments you’re current on, or court-mandated monthly payments under Chapter 13.

Long-Term Effects

While all of your old debts will be wiped clean from your credit report, your report will reflect that you filed for bankruptcy. The filing will stay in your credit file for 10 years. It will affect your ability to get new credit cards, personal loans or any other type of debt, because lenders will see you as a high risk. However, you’ll also find that the further the bankruptcy is in your past, the easier it will be to borrow again, although you may pay higher interest rates than other borrowers.


Not all the effects of bankruptcy are so cut and dried. People who file for bankruptcy also experience shame or embarrassment. Additionally, not all debt can be dismissed in a bankruptcy filing. Student loans will stay with you even after filing for bankruptcy, except under a small number of circumstances.