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3 Things You Need To Know About Filing For Chapter 7 Bankruptcy

Getting into trouble with your finances can be easy to do. It can be so convenient to take out your credit card whenever you want something, such as concert tickets or a new television. Then, before you know it, you have maxed out all of your credit cards and collection companies keep calling because you have no way to pay it all back. Filing for Chapter 7 bankruptcy can help relieve you of your problem debts so you can get your life back on track. Here are three things you need to know about filing for Chapter 7 bankruptcy.

1. It doesn't wipe out all types of debt.

While some people think chapter 7 bankruptcy is a miracle eraser and it wipes your debt slate completely clean, that is actually not true. For instance, if you were sued in a personal injury case and the judge found in favor of the plaintiff, you likely will not be able to get rid of that debt through bankruptcy.

Some of the other debts that you can't get rid of in chapter 7 bankruptcy include:

  • Child support payments
  • Alimony/spousal support
  • Tax debt
  • Student loans (unless you can prove paying them back would put an extreme hardship on you)
  • Government fines and penalties
  • Debts obtained through fraud

You will need to speak with a bankruptcy attorney to see which of your debts you can get rid of with bankruptcy.

2. It will likely damage your credit score - but maybe not as much as you think.

It is a given that filing for Chapter 7 bankruptcy will hurt your credit score. However, it may not hurt it as badly as you think. If you had a lot of overdue debts that were in collections at the time of filing for bankruptcy, then your credit score was likely already badly wounded. While the bankruptcy will impact a bad credit score, it won't hurt it as much as it would a good credit score.

If your credit score is actually good when you file for bankruptcy, you can expect it to take a major hit. People with good credit scores would be better off to try paying off their debts, if possible. That way you can continue to protect your good credit score and won't have a bankruptcy following you around for several years.

3. You need to begin rebuilding your credit as soon as possible after the bankruptcy.

Your bankruptcy will stay on your credit report for up to 10 years. However, that doesn't mean you can't start rebuilding your credit immediately. In a lot of cases, even though you can't get a regular credit card, you can get a secured credit card.

A secured credit card is one where you pay a deposit to open it up. If you do get one of these cards, you need to be sure you only use it on things that you will be able to pay for when you get your paycheck. You need to make your monthly payments on time and always pay more than the minimum so you don't incur a lot of interest charges. As long as you pay all of your post-bankruptcy bills on time, your credit should be in very good shape once the Chapter 7 bankruptcy falls off. 

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