No matter how hard we may try to keep a tight rein on our finances, things can quickly spiral out of control.
The U.S. Constitution allows citizens to appear before a judge as natural persons and declare their insolvency, citing two chapters of the 1978 Bankruptcy Reform Act.
Types of Personal Bankruptcies
Depending on how much you owe, you can file for bankruptcy under Chapter 7 or Chapter 13 of the abovementioned Act.
Chapter 7 Bankruptcy
In a Chapter 7 bankruptcy case, the court rules that the filing individual does not have the necessary means to pay their debts and starts a liquidation process.
In so doing, court officials will sell all the property in the bankrupt person’s name and erase the remainder of their debts.
Chapter 13 Bankruptcy
Also called a wage earner’s plan, this type of bankruptcy allows you to regain limited control of your assets and finances as long as you follow a rigid repayment scheme.
Whether you will be able to file for a Chapter 13 Bankruptcy depends on the amount of your debt:
- Secured: less than $1,257,850
- Unsecured: less than $419,275.
As soon as one files a Chapter 13 petition, an immediate stay on their home’s foreclosure procedure comes into force.
Bankruptcy Isn’t Something You Can Hide
Now that you know what personal bankruptcy is and how it works let’s return to the question of privacy.
Let’s face it, bankruptcy and privacy are two words you can hardly put in a sentence. Your bankruptcy record becomes accessible online as soon as your petition is approved.
Your bankruptcy court record will appear in every background check that future employers may run on you.
Engines that search for people online put the court and criminal records at the top of their reports, no matter if one uses a free trial or a premium account.
And even if your bankruptcy isn’t a crime or a civil offense, it will show up as soon as the searching bots start crawling the databases of the federal bankruptcy courts.
Chapter 7 bankruptcies remain on your credit score for ten years, while those filed under Chapter 13 – for seven. In other words, it won’t be easy for you to negotiate any loan during the said periods.
Fortunately, a handful of U.S. lenders have specialized in helping individuals rebuild their post-bankruptcy credit scores.
They will first agree to issue a secured credit card in your name, and after several months, you may even qualify for an auto loan.
As mentioned earlier, most people search websites can reveal if one has filed for bankruptcy or not. If you’ve filed under Chapter 13, the company’s accountant will have to wire a fixed monthly installment to your trustee.
Considering that it’s going to stay in your financial history for the next seven to ten years, your financial demise cannot remain hidden from your future employers.
Can I start a new job after bankruptcy?
No public employer in the U.S. can fire or refuse to hire you because you have filed for personal bankruptcy.
And while a private employer cannot terminate your employment contract based on your bankruptcy filing, they have the right to deny employment to bankrupt individuals.
Family and friends
Filing for bankruptcy is not an easy decision, and its emotional impact compares to losing a close relative or dear friend.
Everyone around you will be involved in that, with your partner and children being the most affected. It is not uncommon for one of the spouses to file for divorce as soon as they learn that the other has filed for bankruptcy.
Companies can file Chapter 7 or Chapter 11 bankruptcy petitions on the same terms as natural persons.
A Chapter 7 filing would stop all business operations, and your business partners would immediately learn about it.
If you, as the company’s CEO, have filed a petition under Chapter 13, the law allows the legal entity to reorganize and continue business operations to pay off its debts.
While privately employed individuals may retain a level of privacy during the bankruptcy proceedings, those holding public offices go straight into the limelight.
Judges, prosecutors, mayors, governors, and senators are supposed to take care of important public matters for the common good.
And when a public official of that rank proves incapable of controlling their personal finances, it is in their and society’s best interest to step down.
Let’s Wrap Up
On many websites, you can read that filing for bankruptcy isn’t a big deal, and hardly anybody will know about it unless you spread the word.
The above paragraphs prove how far-fetched such bold statements can be. Filing for bankruptcy is a tough choice, and the recovery process may take up to a decade.