The effects of bankruptcy will mainly depend on the Chapters, under which the bankruptcy was filed. There are six different chapters for filing bankruptcy; however, Chapters 13 and 7 are the most common for individuals. Although, bankruptcy gives individuals the chance of absolving themselves of debts and getting a fresh start, it is a serious decision, and such a step should be taken after considering the possible effects.

Common Effects

Certain effects of bankruptcy are common irrespective of the Chapter. The main effect will be on your credit report, and the fact of bankruptcy filing can appear up to ten years in your report. This seriously downgrades your credibility, and although it is not impossible to get credit during that period, your interest rate will be quite high, as you are considered a high-risk debtor. Secondly, it will also be quite difficult to get a home loan. After the bankruptcy, you will need to establish good credit standing for a period of at least two years. Even after that, if you qualify for a home loan, the interest rate will be high.

Effects of Chapter 13

Chapter 13 bankruptcies are more of a program of debt management run by the government, where individuals can keep their assets, and make payments on a regular basis to a trustee, over a period of three to five years. The amount so collected is distributed to the creditors. However, this is comparatively a lenient plan, and not everybody can qualify. The person should have less than $270,000 in unsecured debts, and less than $800,000 in secured debts, and must have an acceptable income. Chapter 13 is also not permissible, if creditors are able to get more under Chapter 7.

Effects of Chapter 7

Chapter 7 is a straightforward liquidation plan, where the individual needs to turn over all assets to the trustee, which are sold to pay off the various debts. There are certain exemptions to the assets that can be liquidated, and it varies between states. In addition, certain debts cannot be discharged through bankruptcy, and these include taxes and other money owed to the government, liability arising from court orders, and student loans. However, there is a way for discharging student loans, through bankruptcy.

Can you File Bankruptcy on Student Loans?

Although it is quite difficult, it is not impossible. The chances of your bankruptcy being accepted for discharging student loans, depends on proving undue hardship caused by its repayment, to yourself and your dependents. The evaluation methods used by various courts will differ, but they generally consider:
€ The inability of the debtor to maintain minimum standards of living due to the forcible repayment of the loan
€ Such a condition will persist during the repayment period
€ The individual has sincerely put in effort towards paying off the student debt

If the hardship factor can be successfully proven by you, then filing of bankruptcy can discharge your student loans. However, before taking any steps in the direction, consider all the effects of bankruptcy, and then opt for the best course of action.