Filing for Chapter 13 or Chapter 7 is a last resort for those who are in debt over their head. Chapter 13 allows you to create a payment plan over the course of several years in which you pay off all or part of your debt. Chapter 7 is a type of fresh start where your debts are wiped out and you are required to rebuild your credit rating from scratch. In either case the burden of debt and legal action will be eased, but both have consequences that are important to understand prior to filing. Either Chapter 7 or Chapter 13 should be viewed as a commitment. You are committing to paying off or removing your debt and solving a problem, but on the other hand, you are also committing to several years of being viewed as a major credit risk. This means different things for different people, but it is important to understand all of the ways in which a filing will affect you. Bankruptcy attorneys will help you understand your filing rights and obligations before you get into a bankruptcy court. If you are considering a Chapter 13 or Chapter 7 filing, be sure you speak with your attorney considering all of the filing.
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You need to understand what, if anything will happen with your tax return; should you choose to file. If you are used to receiving a refund at the end of the year, this may be vulnerable to creditors if you have filed. It is viewed as disposable income and you may end up losing 50% to 100% of the return. However, there are ways you can protect this money. Some choose to claim higher withholdings throughout the year. This puts more money into their pocket on the monthly basis and creates a situation where there is no annual refund to garnish. However, you must be careful to increase your withholdings properly to avoid owing tax at year's end.
Another way to protect a refund is to have the money placed into a retirement account throughout the year. While you will have less access to your monthly income, the money will be protected in a tax free account that is not vulnerable to creditor attack. This also helps you plan financially for the future and it gives you something to look forward to once you repayment period has ended and it is time to retire.
Filing Chapter 13 and Chapter 7 will affect your ability to get credit in the future. For up to a decade you may find yourself unable to get loans for vehicles or mortgages, and you may be denied unsecured credit like credit cards. It may also be difficult for you to find employment, to open a checking or savings account, or to gain certain clearances affiliated with employment. If you plan to marry, your prospective spouse can be affected not by being held liable, but having their options reduced when it comes to owning a home or getting a fair interest rate on loans. You will be asking them to take on some of the consequences of your filing, so keep that in mind if you are considering this option.
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