What Do I Lose When I File for Bankruptcy?

by John Csiszar ; Updated July 27, 2017

Depending on how you file your bankruptcy, you may lose more than you should. Bankruptcy laws can be complicated, and without understanding how all of your rights are affected you could lose both property and cash. No matter which chapter of bankruptcy you file under, Chapter 7 or Chapter 13, you stand to lose something as recompense to your creditors.

Chapter 7 Bankruptcy

When you file Chapter 7 bankruptcy, your risk is in losing some of your property. Chapter 7 is generous in that it requires no payments to your creditors, no matter how much debt you have. However, through a system of bankruptcy exemptions, your state decides which property you can keep and which property the bankruptcy trustee will liquidate. Some states allow you to keep more than others, so you should understand your own state's exemptions before you file Chapter 7. For example, states such as Texas and Florida offer an unlimited housing exemption, while others might only protect $5,000.

Chapter 13 Bankruptcy

Your risk in Chapter 13 bankruptcy is that you will have to pay creditors for an extended period of time. There are no bankruptcy exemptions in Chapter 13 bankruptcy, as you retain possession of your valuables. However, depending on your income you have to pay the court a monthly sum for distribution to your creditors for either three or five years. While you may not have to reimburse your creditors in full, your payment plan will consume all of your monthly disposable income, as calculated by the court.

Secured Debt

While Chapter 7 bankruptcy exemptions may protect your assets from liquidation by the court, if you have any secured debt you run the risk of losing your collateral. A bankruptcy discharge releases you from the liability to pay your secured debt, but it does not protect you from your creditor repossessing your home or vehicle, or whatever collateral secured your debt. You can usually keep your collateral property by continuing to pay your secured creditor, but if you cannot afford the payments, even a bankruptcy discharge will not protect you from repossession.

Credit Score

Whether you file Chapter 7 or Chapter 13 bankruptcy, your credit report and score will suffer greatly. Bankruptcy has the greatest possible negative impact on your credit score, according to Experian, and the effects can be long-lasting. You may lose the ability to obtain inexpensive credit for the full duration that your bankruptcy appears on your credit report, which is seven years in the case of Chapter 13 and 10 years for a Chapter 7.

About the Author

After receiving a Bachelor of Arts in English from UCLA, John Csiszar earned a Certified Financial Planner designation and served 18 years as an investment adviser. Csiszar has served as a technical writer for various financial firms and has extensive experience writing for online publications.