Personal bankruptcy and consequences of filing

Deciding whether or not to file for bankruptcy could be tough to do for some Minnesota consumers, especially if they do not know all of their options. If they do decide to file, there are also consequences of which they should be aware.

The first step to filing for bankruptcy is seeking credit counseling, during which debtors are made aware of all of their options, including settling the debt with creditors. Credit counseling is a requirement, and debtors can take low-cost or free classes through the National Foundation for Credit Counseling.

Two options for personal bankruptcy filings are Chapter 7 and 13 bankruptcy. Under Chapter 7, debtors can have most of their remaining unsecured debt discharged after their non-exempt property has been liquidated by the trustee and the proceeds used to pay creditors. Under Chapter 13, debtors who have a regular source of income enter into a court-approved repayment plan that lasts from three to five years. After the successful completion of the plan, much of the remaining unsecured indebtedness is discharged.

The consequences of filing for bankruptcy include the fact that the filing generally appears on credit reports for seven to 10 years. This affects the debtors' credit scores, making it harder for them to obtain lower interest rates when they buy a house or car or when they apply for credit cards. For example, interest rates on auto loans can reach 21 percent.


Although filing for bankruptcy could be the best course of action for many debtors, others might benefit more from agreeing to a debt management plan with their creditors, which could get them out of debt within five years through payments that are based on their income. Debtors who have trouble determining which option is best for their situation could talk further with their credit counselors or obtain the assistance of a bankruptcy attorney.

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Prescott Pearson & Tande, PA
443 Old Highway 8 Northwest, Suite 208
New Brighton, MN 55112

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