Does Filing Bankruptcy Ruin Your Life?

Does filing bankruptcy ruin your life? Declaring bankruptcy doesn’t mean the end. You don’t lose your ability to function. The world is different.

After bankruptcy, you should start rebuilding yourself. This is true whether it was caused by an unexpected event, unemployment, or volatile markets. Most people who have to declare bankruptcy don’t end up with anything. They can start over.

Will bankruptcy ruin your life? Did bankruptcy ruin your life? Learn more about the bankruptcy process and it’s impact to your financial future.

Why Declare Bankruptcy

Bankruptcy laws exist to protect those who are in debt beyond their ability to pay. Most people who file for bankruptcy are not wealthy. No matter which bankruptcy chapter is filed, the median income is less than 42,000.

Although bankruptcy allows you to start again, it can affect your credit and make it more difficult to borrow money in the future. Your credit report will show it for 7-10 years.

Chapter 7 and Chapter 13 are the two most common types of bankruptcy. Both get you back to zero.

Chapter 7 Bankruptcy

Chapter 7 bankruptcy is a good option for those with low incomes or few assets. You can divide your property into exempted and non-exempted items. Also, you can keep some exempt items and sell others to pay off your debts. This means you can keep your car and house while still receiving benefits.

Cash, investments, and extra assets are typically non-exempt. If you own two houses, for example, you can keep the primary home but must sell the second. A judge may also discharge certain portions of your debts. As a result, the total amount you will have to liquidate in order to pay off your debts may vary.

Chapter 7 bankruptcy will immediately affect your credit score, but as your financial situation improves you can build it up again over time.

Chapter 10 Bankruptcy

With Chapter 7, your debt is paid in full at once. Chapter 10 allows you to pay it over time. Chapter 13 is a good option for those who earn more money. You can create a repayment plan of three to five years with your creditors. After this is done, all remaining debts are erased.

Creditors can demand the full amount if you fail to meet the terms of your repayment plan. You lose any relief that you may have received by having part of your debts eliminated.

Bankruptcy and Home Ownership

If you are already a homeowner at the time you file for bankruptcy, it’s likely that you will keep your home. If you decide to sell your house, there may be issues since bankruptcy proceedings give the court control over the home.

You may not be able to get financing for a house if you declare bankruptcy prior to owning a home.

Both of these problems can be overcome with planning and patience.

Buying a Home

A bankruptcy can affect your credit score and delay your ability to purchase large items. When your credit score drops, it’s harder to finance anything, from a home to a car. You can rebuild your credit score.

Plan ahead if you have a bankruptcy in your past and are ready to purchase a house. Regularly check your credit score to ensure that everything is correct. It’s important to avoid making your credit score look worse than it is.

Credit cards can help you rebuild your credit. Spend only enough money each month to be able to pay your full bill. Declaring bankruptcy can cause your credit score to be damaged.

Do not buy while you are still awaiting a bankruptcy hearing. Mortgages are not available until you have a discharge from bankruptcy. It is a court order which releases you from any responsibility for certain debts. It’s a document that officially says you are excused from paying part of your debt.

Waiting two years to purchase a home after bankruptcy will give your credit time for it to recover and allow you to develop the good financial habits that a lender is looking for.

Selling a Home

Selling your home while in bankruptcy can be a problem. Even if you keep your assets, if you file Chapter 13 you don’t have control over them. The court and the bankruptcy trustee are both in control. You will need to get their permission before you can sell or refinance.

No matter if your plans for a sale were already in motion or if you were just about to close. These actions can be delayed or even canceled during bankruptcy proceedings.

You must also notify your creditors if you want to proceed with the sale. You must then keep all parties informed about the details of the transaction. The money that you earn will be sent to your creditors in order to settle your debt.

You won’t get any money from the sale if you owe more on your house than it is worth. If you owe more than the home’s sale price, the cash you receive from the sale will not be enough to pay off the debt.

How to Not Let Bankruptcy from Ruining Your Life

People may not only be concerned about housing when it comes to bankruptcy. People may be concerned about buying or selling a house, but they might also wonder about their work and benefits.

Employment

In most cases, bankruptcy should not affect your ability to find a job. A private employer is the only one who can refuse to hire a person solely because of a bankruptcy filing. In the event that a private company decides to refuse to hire you, it must give a valid reason for its decision. You need to have a ‘justification’ for your refusal.

Also, you cannot be fired from your job while going through bankruptcy. They don’t need to know unless you tell them, or if a creditor garnishes your wages.

Federal Benefits

There is a grey area for those who declare bankruptcy. Some people are covered, while others aren’t. The money is not included in your income for those who are covered by the umbrella. The money is not included in the amount of debt you need to pay, so it’s no longer received.

Three primary benefits are typically protected:

Social Security
Disability
Unemployment

It is against the law to deduct benefits from your social security or disability payments when you pay income taxes.

Most people do not consider unemployment benefits as income. If you apply for unemployment benefits during bankruptcy proceedings, it is important to get approval.

It is unlikely that your income will be affected by unemployment. This only occurs when certain circumstances are in play. They’re rare.

Embrace a Brighter Financial Future with Bruner Wright

Does filing bankruptcy ruin your life? No, it doesn’t. It’s actually good to know that bankruptcy means more than just suffering penalties. You can feel more in charge of your financial future with the right attitude and careful planning.

Navigating the complexities of bankruptcy can seem overwhelming, but at Bruner Wright, we’re here to guide you through every step of the process. Bankruptcy doesn’t have to define your life; it’s a chance for a fresh start. Our expert team understands the challenges you’re facing and is dedicated to helping you regain control of your financial future. With the right attitude and strategic planning, you can move past this chapter and towards a more stable and prosperous tomorrow.

Contact Bruner Wright today and take the first step towards reclaiming your life after bankruptcy.

Does Filing Bankruptcy Ruin Your Life?