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What Happens When You File For Bankruptcy?

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January 5, 2021

Bankruptcy is considered a last resort for businesses and individuals who are suffering financially. And for good reason — it’s a challenging process that can have long-lasting consequences. If you’re considering filing for bankruptcy, talking with a McCue Law Office bankruptcy attorney can help. We provide free consultations, so there’s no risk to you in contacting our Bangor law firm. And if you’re looking for general information about what happens when you file for bankruptcy, continue reading this blog post! 

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What is Bankruptcy?

Bankruptcy may sound ominous, but more people file for bankruptcy than you think — including large corporations and celebrities. It’s a simple concept, and bankruptcy laws exist to protect you. Essentially, when you can’t afford to pay your debts, they are written off or a new payment plan is created that makes it possible to pay at least a portion of the debt.

Will I Lose My Property?

The answer to this question depends on what type of bankruptcy you file. The most common are chapter 7 bankruptcy and chapter 13 bankruptcy. If you’re unsure of what option is right for you, contact one of our bankruptcy attorneys.

Chapter 7 Bankruptcy

This chapter is often called liquidation bankruptcy because you will need to sell off some of your assets in order to pay at least a portion of your debt. These may include retirement accounts, vehicles, and house. Some assets are exempt from liquidation, though, and our bankruptcy attorneys are more than happy to talk with you about your options.

Chapter 13 Bankruptcy

When you file for chapter 13 bankruptcy, you don’t need to worry about needing to liquidate your assets. Chapter 13 bankruptcy involves reorganizing your debts and creating a payment plan that you can fulfill over time. This allows you to pay them off partially, or in full, over a longer period of time. However, if you don’t comply with the payment plan, you may end up losing assets in order to pay off your debt.

What Happens to My Credit?

Declaring bankruptcy is a sign that you cannot pay off the debts that you originally agreed to, which makes lenders warier of loaning you money. As with the previous property question, the extent to which filing bankruptcy affects your credit depends on the type of bankruptcy you file. While chapter 13 bankruptcy will impact your credit, if you are following the payment plan and continuing to pay off your debt, your credit score will recover more quickly and it will be removed from your credit report after seven years.

Chapter 7 bankruptcy, on the other hand, can stay on your credit for up to 10 years, making it very challenging to build credit or obtain loans. There are credit cards that are designed for people building credit after bankruptcy, though, and your credit can eventually recover. Credit scoring favors new information over old information, so if you have positive credit-activities after bankruptcy, your credit score can recover.

Will Bankruptcy Make It Hard To Rent A House or Apartment?

It will be harder to rent or lease after bankruptcy, but it’s not impossible. While landlords will likely see you as a higher-risk tenant, you may be able to offset this risk by providing a higher security deposit. 

When looking for an apartment, your best bet is to be as honest as possible about your financial situation. Property management companies will likely be more strict than individual landlords, and you should try to go directly to the landlord, as you may be able to give a better first impression and negotiate options.

Bankruptcy may also affect your ability to gain future employment, as about twenty-nine percent of employers run a credit check on job applicants. This is especially true if the position you are applying for requires that you handle money. If, however, your employer simply runs a background check, your bankruptcy won’t show up. 

Considering Filing For Bankruptcy In Maine?

Our bankruptcy attorneys are here to help you if you need to file bankruptcy. We hope that you found this blog post to be helpful, and if you’re in need of our legal services, please contact our Bangor-based law firm. Our team has more than 35 years of experience advocating for our clients, and along with bankruptcy, we also specialize in personal injury, social security disability, workers’ compensation, and real estate. Contact us today for a free consultation. 

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