How bankruptcy affects one’s finances and job prospects

On Behalf of | Mar 31, 2020 | personal bankruptcy |

A bankruptcy filing can affect a person’s ability to obtain loan or rent an apartment, mainly because it destroys a person’s credit. Illinois residents who are considering filing for bankruptcy might be wondering if it will have an effect on their future job prospects, too.

There are two different types of bankruptcy filings: Chapter 13 and Chapter 7. A Chapter 13 bankruptcy allows people to keep their assets if they pay them off via a repayment plan. Chapter 7 bankruptcy requires filers to pay back their creditors by liquidating their assets.

After a bankruptcy is filed, a flag shows up on the filer’s credit report and remains there for seven years in a Chapter 13 filing and 10 years in a Chapter 7 filing. Once the flag is removed, it becomes easier for people to get a credit card and a loan, especially those who filed a Chapter 13 bankruptcy. In fact, nearly 5% of Chapter 13 filers obtained mortgages about a year after the flag was removed compared to people who still had the Chapter 7 bankruptcy flag on their reports, according to a recent Yale University study.

In regards to the impact of bankruptcy influencing employment opportunities, a bankruptcy filing had no negative impact on a person’s ability to obtain a job, nor was it a cause for people being dismissed from their job, the study found. In fact, researchers learned that a flag on a job applicant’s credit report had very little effect on a person’s ability to obtain a job. This is despite the fact that people may think that the quality of a person’s abilities is lowered if that person carries a bad credit report.

Filing for bankruptcy can be a tool to help people protect their assets, discharge their debts and get their finances under control. A lawyer may explain the types of bankruptcy filings to those who are seeking debt relief.