The Three Primary After-Effects of Personal Bankruptcy
Contrary to what is sometimes said by politicians and in the blogosphere, most people do not enter into bankruptcy lightly. Bankruptcy is a means to manage difficult finances and overwhelming debt – or as in the case of Chapter 13, a reorganization that enables you to pay off debts over time.
Still, individuals who are filing for bankruptcy should be aware that there can be lingering consequences:
Taxes – Every person’s bankruptcy and asset-liquidation situation is different. You may need to review IRS Publication 908 to sort through what the implications are for you. The key point is that debt discharge in bankruptcy is treated differently from debt cancellation, usually to the benefit of the filer. But if you own a home or business liquidated in the bankruptcy, there may be capital gains to report.
Loans and credit – For seven to ten years your credit score will likely red flag you as ineligible for anything but secured (collateralized) loans. For example, you can carry a bank account-secured credit card, useful for travel and purchases, but you’ll need to have the sufficient money on deposit to cover 100 percent of all charges.
Credit score, job and rental applications – In the years to follow, your bankruptcy will be reflected in your credit score. Beyond denying you credit cards and loans, your score may legally be reviewed by prospective employers and landlords. While this might impede your search for jobs and homes, it is not necessarily a disqualifier. You will need to prove your qualifications in other ways.
A qualified bankruptcy attorney can discuss with you the types of bankruptcy filings and how any of these might still be your best option.