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Long-term Personal Bankruptcy Implications

Declaring personal bankruptcy is one of the top stresses a family or individual can face. It is avoided at all costs and only considered as a means of last resort. In this troubled economy massive lay-offs have pushed many to financial ruin and so there has been a dramatic increase in personal bankruptcies.

Short-Term Relief

Once a bankruptcy attorney is hired bill collectors by law must stop calling you requesting payment. Each collector must be informed of the impending bankruptcy and provided with the name of the attorney. Once this information is verified the constant phone calls will end. While this brings immediate relief there are still long-term implications that will persist.

A Part of Your History

Personal bankruptcy will stay on a credit report for ten years. Even though bad credit can be re-built, the bankruptcy will remain part of your credit history. Depending on what type of debt was owed, it could take some time to rebuild bad credit.

Big Purchases

Bankruptcy attorneys inform their clients about the inability to make big purchases such as a house. New Jersey for example, is a state in which it usually takes two years to rebuild a credit history to the point that will qualify a home-buyer to purchase a house.

The ability to rebuild personal credit is a slow process that usually begins with securing a credit card. If you do not qualify for a regular credit card, it is advised that a secured credit card be attained. As you prove your financial worthiness, it will become easier to receive a regular credit card. A credit score will slowly raise if the credit card is used wisely and the amount due is paid off in full. Carrying a small balance is tolerable and will not adversely affect your overall credit score, if it stays below a certain percentage of your credit limit.

Receive Annual Credit Reports

Since the credit history of anyone who files personal bankruptcy will be adversely affected, receiving annual credit reports will be beneficial. All three companies will provide a history once requested. For a fee, the credit score itself can also be obtained. Working to reach the “good” credit score grouping is most important.

Personal bankruptcy can be claimed every eight years, but once is usually more than enough for most people. It will take at least two years to rebuild your credit, but with determination it can be achieved.

 

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How Business Bankruptcy Affects the Corporation Owner

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Filing for bankruptcy is often a scary process for any type of person, especially for business owners that are filing a business bankruptcy. Many business owners wonder how filing a business bankruptcy will affect their personal credit history, and while there is no exact answer to this wondering thought there are a few principles that apply to different business situations.

The affect a business bankruptcy plays on a business owner is generally determined on how the business was originally structured. When a business is formed there are several different categories it can fall into, including a sole proprietorship, corporation, or a limited liability company. Based on what type of structure a business falls into is what determines how a business bankruptcy will affect the business owner.

Bankruptcy on a Sole Proprietorship

When a business owner starts their own business under a sole proprietorship structure then the owner is personally liable for all business debts that are incurred. Business owners that own this type of company do endure damage to their credit report if they file for bankruptcy. To put it simple, in the eyes of the court the business owner and their personal debt and business debt are one in the same. The best type of bankruptcy to file when an owner files for one on a sole proprietorship company is a Chapter 13; this type allows the business owner to reorganize their business and pay off debts over a certain period of years. If they file a Chapter 7 bankruptcy then their home, automobile and other personal assets can be sold to pay for business debts incurred.

Bankruptcy on a Corporation or Limited Liability Company

When a business owner opens a business under a corporation structure or a limited liability company structure then their personal assets cannot be affected during a business bankruptcy. In the eyes of the court the business owner and their business are not considered one entity. Due to the fact that business owners cannot be held personally liable during a business bankruptcy they often open a business under a limited liability company structure.

Employee Wages During a Bankruptcy

Anytime a business owner files a business bankruptcy they must pay any wages that are owed to business employees; this applies to any type of business structure. If the business owner fails to pay employees their earned wages then the business owner can be held personally liable.

 

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