Imagine the following: you’re struggling with debts, and you’re starting to consider bankruptcy as a potential path to reducing your debts and getting back on your feet. What happens next? It’s a question that leading bankruptcy attorneys get asked frequently, and today, we’re going to try to answer this oft-posed query in a way that will prepare you to make the best decision possible.
The Basics On Bankruptcy
If you’ve been contemplating bankruptcy already, you probably already know that there’s a difference between the two primary bankruptcy types—chapter 7 and chapter 13. We won’t spend too much time comparing all the ways in which these two forms of bankruptcy vary. Instead, we’ll talk about some commonalities that you’ll want to stay aware of, like what bankruptcy is for and what it will do.
Speaking broadly, bankruptcy is a way for individuals who are struggling with debt to eliminate some of the financial obligations that they have in an effort to gain a “clean slate.” Most of the individuals who file for bankruptcy owe money on their mortgages, have fallen behind on credit card debt, or are dealing with substantial medical debt or auto loans. Bankruptcy, for such individuals, works as a way to get back on their feet after being knocked down by debts.
That all being said, it’s not a completely fresh start. Bankruptcy usually comes with a significant number of tradeoffs and potential negative consequences, which we’ll discuss next.
How Bankruptcy Can Negatively Affect You
After you’ve gone through all the necessary steps to file for bankruptcy (an ordeal all its own), one of the biggest things you might notice is how doing so affects your credit.
Filing for bankruptcy sends the alarm to creditors that you have difficulties with meeting your financial obligations. It will be more difficult to secure credit in the future, at least until your bankruptcy filing is eliminated from your credit report. That process typically takes seven years (for Chapter 13 bankruptcies) to ten years (for Chapter 7 bankruptcies).
Bankruptcies can also affect your ability to secure employment. Nearly thirty percent of employers will run a credit check on you when you apply for a job. Having a bankruptcy on your record could, therefore, impact their decision on whether or not they want to hire you—particularly for positions that will put you around a lot of money.
Regaining Your Footing
While it’s true that a bankruptcy will likely cause significant changes in your life, it’s important to keep in mind that whatever damages it does bring about won’t be permanent. You’ll have the opportunity to rebuild your credit and finances, and you’ll be able to maximize your odds by following a few simple bits of advice:
Make your future payments in a timely manner
Pay past-due accounts in full
Keep your credit utilization under control
Save what money you can for a rainy day
Consider using a secure card to build credit
Seek professional help if you need a more detailed plan
Continue practicing good habits post-bankruptcy, and it’s more likely than not that you’ll see your situation slowly improve as time goes on. Good luck!