Anyone considering bankruptcy should consider the consequences of filing for bankruptcy in the United States. In the following article we will discuss the basic positive and negative consequences for 2022.

Whether you are considering Chapter 7 direct bankruptcy or the Chapter 13 repayment plan, consulting with experienced New York bankruptcy lawyers is essential. At Ortiz & Ortiz we have 30 years of history and successes to ensure that the process runs smoothly and to your advantage.

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What Are The Consequences Of Filing For Bankruptcy In The United States In 2023?


On the positive side, filing for bankruptcy usually ends with a debt discharge.

  • The bankruptcy court issues a permanent order that prevents creditors from collecting debts that you previously incurred.
  • Credit cards are among the most common forms of debt that can be canceled.
  • There are exceptions that cannot be canceled such as recent tax obligations, child support or alimony among others. However, with Chapter 13 bankruptcy you can make payments more feasible through the payment plan.

Note: The discharge does not extend to real estate. That is, any lien a mortgage lender has on your home will remain in effect after bankruptcy. These lenders can foreclose if you do not pay your loan.

Credit Score

Generally, this is what happens:

  • Bankruptcy will lower your credit score.
  • Your past debt history will not be erased even when the debt is canceled.
  • You can get high interest rates as you are a risky borrower.

While it is true that bankruptcy affects your credit score, you should not forget that it helps you recover from your growing debt. In other words, it may be in your best interest to have your score suffer if it improves your financial situation.

Note: Improving your credit score is possible and we show you how in our article “How to raise your credit score fast“.

As we go about our daily lives, the last thing we want to think about is what will happen to the money, property and other assets in the future. Talk with our New York estate planning attorney today to plan your future today.

As we go about our daily lives, the last thing we want to think about is what will happen to the money, property and other assets in the future. Talk with our New York estate planning attorney today to plan your future today.

Getting A Post-Bankruptcy Loan Or Credit Card

Your report will show bankruptcy information and this can make it very difficult to obtain additional credit. At least, until this information disappears from your report.

Lenders will be cautious in this regard and you may face higher interest rates or less favorable conditions for you.

The important thing is not to fall into financial trouble again and to start rebuilding your credit immediately.

Obtaining A Mortgage After Bankruptcy

Here again, you may experience difficulties obtaining a mortgage.

  • Your application may be rejected or if accepted, you may face a high-interest rate.
  • You may be asked for a much higher down payment.

One option instead of giving up your home will be to try to get a new mortgage after bankruptcy. This will allow you to keep your current house by paying your mortgage debt free.

Note: This topic is covered in detail in the article “Home refinance after bankruptcy“.

Immigration Consequences Of Filing For Bankruptcy In The United States

Currently, Form I-944 (Declaration of Self-Sufficiency) asks about issues such as the applicant’s credit history or bankruptcy declared in the United States and other countries. This is due to the entry into force of the Public Charge Rule on October 15, 2019.

Based on this form the immigration officer can approve or reject applications such as visa extensions or adjustment of status. It may look better for you to have a bankruptcy filing and no debt rather than tens of thousands in debt. It may also be better to keep your debt and have no bankruptcy.

Therefore, although anyone can file for bankruptcy regardless of their immigration status, it can affect a future immigration process.

You can contact our experienced bankruptcy attorneys to find out if bankruptcy may help or hurt your case

Automatic Stay

The automatic stay is another positive aspect of filing for bankruptcy. It is basically a preliminary judicial decree.

As soon as the bankruptcy case enters the court, the applicant is protected from creditors seeking to collect the debt. That is, they will not be able to send billing notices by mail or call you by phone.

In some cases, the automatic stay will be lifted. However, in most cases it will remain in effect until the bankruptcy court decides which debts to discharge and which you must pay.

Note: Divorce proceedings or property being of less value than the debt are examples where this automatic stay could be lifted.

Another of the consequences of bankruptcy is that you may lose the property to the bankruptcy trustee.

If you own a luxury item such as a luxury vehicle, you may be forced to sell it to pay off some debts. However, there are exemptions that allow you to keep your property.

On the other hand, it is not always beneficial for the trustee to sell your property as the cost of auctioning it may be higher than that of the vehicle itself. The matter gets complex in terms of houses used as warranty.

Will You Lose Your House?

  • You will not lose it under Chapter 13.
  • Under Chapter 7 it depends on how much equity you have in your home.
    • If you have a lot of equity, the trustee can sell it to pay off your creditors.
  • You can protect a percentage of your home through federal and state exemptions.
    • The federal maximum is usually $ 170,350 and doubles if you are married and file bankruptcy with your spouse.
    • If you have less equity, the trustee will not sell your home as it will not generate enough to pay off many debts. However, the lender can still foreclose on the home.
    • If you have more than this amount in equity, the trustee will likely sell your home and use the amount exceeding the exemption to pay off creditors.

Note: You might be interested in reading if bankruptcy can affect your spouse.

Can You Keep Your Vehicle?

You will most likely be able to keep it if you can continue to make your car payments. If not, it depends on the cost of the car, your debt, and exemptions.

Note: For more information on keeping your vehicle after bankruptcy, review our article “Can I keep my car if I file bankruptcy?.”

Will You Lose Your Cash?

Not in Chapter 13 but they will take unexempt cash under Chapter 7.

Similarly, bank accounts can bee exempt up to a certain amount under chapter 7. Depending on what other personal property you exempt, you could protect around $10,000 in your bank accounts.

Note: Here there are also exemptions such as alimony, child support payments, retirement accounts, pensions, public benefits for unemployment or disability among others.

Your Bankruptcy Can Affect The Finances Of Others

Imagine your parents have jointly signed a car loan for you. In this case, they may still be responsible for at least part of that debt when you file for bankruptcy.

Impact Of Your Exposed Privacy

A negative aspect is that everyone will be able to access what you submit to the court. Bankruptcy cases are public record, so the information contained in your petition can be publicly accessed.

In other words, your clients, friends, workers and your family will know how much money you owe and to whom.

Note: Some information will be kept confidential. The minors involved will only appear by their initials. Likewise, only the last four digits of the taxpayer identification number and Social Security number are public. Bank account numbers and other sensitive information are also redacted.

In addition to the monetary impact, bankruptcy remains stigmatized in our society. For some people it will have no effect whatsoever on themselves but for others it can have a psychological impact.

Consequences Of Filing For Chapter 7 Bankruptcy In The United States

  • You can lose property.
  • Negative bankruptcy information will stay on your credit report for 10 years after the filing date.
  • You will not be able to file for Chapter 7 bankruptcy again for 8 years.

Note: You can find a complete guide on our website on Filing for bankruptcy Chapter 7.

Chapter 11 will stay on your credit report for 10 years too. This will remain on the business’s credit report, not the owner’s, unless a personal bankruptcy petition is filed. Our New York business lawyers can help you solve all your doubts regarding companies and on our website, you can learn about Chapter 11 bankruptcy.

Consequences Of Filing For Chapter 13 Bankruptcy In The United States

Although Chapter 13 also negatively affects your credit, it may be a more favorable option.

  • Here you pay part or all of the debt and it is possible to retain some assets.
  • It disappears from the credit report after 7 years.
  • You can resubmit your declaration of conformity under this chapter in as little as 2 years.

The main effect of Chapter 13 bankruptcy is that the debtor must make all payments to creditors for 3 to 5 years.

Note: If you want to learn more about the payment plan for Chapter 13 Bankruptcy check out our specific section on the web. Our New York asset protection attorney can help you protect your assets.

Will My Employer Know About My Bankruptcy?

The bankruptcy code has laws that prohibit employers from discriminating against employees based solely on bankruptcy filings.

Through Chapter 13, the court could order the payments to be automatically deducted from your wages. These payments will be sent to your creditors.

  • The employer does not have to know about your situation, although it may be the case.
  • If the employer knows, it is usually because a creditor has sued and is garnishing your wages. The garnishment is stopped due to the bankruptcy proceedings and your employer must be notified.

This does not necessarily have to be a negative thing. Your employer may empathize with your financial situation and be relieved that you have filed for bankruptcy to start over fresh.

Note: Will bankruptcy stop wage garnishment? Get a clear answer on our website.

Ortiz & Ortiz Helps You Assess The Consequences Of Bankruptcy For Your Case

Filing for bankruptcy in the US is a complex process and is rarely successful without an attorney. Our firm has experts with more than 30 years of combined experience serving New York.

We can help guide you on how to file for bankruptcy in New York. This will give you immediate protection from your creditors and will be a relief to eliminate most of your unsecured debt.

Contacting our bankruptcy experts ensures you comply with all applicable rules and regulations governing bankruptcy proceedings.

Call us today so we can hear about your case and begin to draw up an action plan to protect your assets, family and financial future.