What Are the Long Term Effect of Bankruptcy?

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What Are the Long Term Effect of Bankruptcy?

Are you considering filing for bankruptcy, or maybe you already did and aren’t sure of the consequences? Whether you’re considering a Chapter 7 straight bankruptcy or a Chapter 13 repayment plan, consulting with a qualified bankruptcy attorney is essential to ensuring that the process is advantageous to your situation. Still, it never hurts to learn whatever you can on your own first. Primary Residential Mortgage hopes you can stay out of bankruptcy. Nevertheless, if you do, these are the long term effects of bankruptcy.

Personal Discharge of Debts

The main reason people declare bankruptcy is to get a “discharge” on certain debts. A discharge is when a bankruptcy court keeps creditors from collecting on debts you previously incurred. For example, credit card debt is typically discharged by a bankruptcy court. Courts recognize that credit card companies can afford to take the financial hit of forgiving consumer debt.

Not All Debts Can Be Discharged

Some debts can’t be discharged, such as recent tax liabilities and alimony and child support. However, a Chapter 13 bankruptcy should be able to help you establish a more feasible payment plan. Also, the discharge does not extend to real estate property, so, any liens on your home will remain in effect after bankruptcy. Consequently, lenders could foreclose on your home if you default on your loan.

Automatic Stay

Another positive effect of filing for bankruptcy is the automatic stay. When the bankruptcy case is filed, it immediately protects the bankruptcy filer from any creditors seeking to collect on a debt. Therefore, creditors can no longer legally call you on the phone or send collection notices.

Credit Score

A bankruptcy filing typically drastically reduces a person’s credit score. Also, bankruptcy won’t erase your credit history, even if the debt itself is discharged. Future lenders might think that you’re a risky borrower, and you could end up with high-interest rates on any new loans, if you can even qualify. The bankruptcy will remain on your credit report for many years, but you can build it back up over time.


Another negative aspect of filing for bankruptcy is that the public can access everything you file with the court. That means anyone could potentially find out the details about how much money you owed and to whom you owed it.

Possible Loss of Property

The point of filing for bankruptcy is to have the court step in and decide how much debt you can afford, and how much should be forgiven. If you own property with significant value, such as a luxury car or boat, you may be required to sell it to pay off some debt. However, if you can successfully exempt your property and show that you can still afford it, the trustee may not be able to sell it.

Bankruptcy is a slow, complicated process that can affect you for many years. If you’re considering bankruptcy, take your time to learn all that you can from reputable sources before making your final decision. As always, Primary Residential Mortgage is here for you and is willing to help you in any way that we can.



Note: Opinions expressed are solely my own and do not express the views of my employer