Fed up with phone calls that pressure you to pay your dues? Tired of worrying about your debts? Filing for bankruptcy may be the solution to your problems! Well, not in its entirety. Filing for bankruptcy also comes with its own set of consequences, and these consequences are worth knowing so you would know how this step could impact your future financial stability.
Bankruptcy In General
There are two forms of bankruptcy and consumers shall choose one of these two if they want to file for bankruptcy. The first type is the Chapter 7 bankruptcy. This option will eliminate a person's debt but he/she will most likely lose valuable assets to help make up for the payments. Assets may include a person's car, home, and other properties with high value. The second bankruptcy form is called the Chapter 13 bankruptcy. In this bankruptcy type, the consumer will be allowed to repay his/her debt at a pace, with a monthly payment, that fits the person's income. A repayment plan shall be created for the person in question and he/she will be freed from constant phone calls from collecting institutions just as long as court ordered payments is being made and made on time.
Bankruptcy's Effect On Credit Score
Any form of bankruptcy will have a big shot effect on one's credit score. How much decrease you can get from your credit score depends on how high or low your credit score already is. But in general, you can expect as high as 150 drop on your FICO score once you file for bankruptcy.
The big drop on your credit score is a very serious issue especially as this factor is a major determinant of how qualified you are for loans and credits. With a bankruptcy record, you will either not qualify for loans and credit, or you will qualify with higher interest rates. Either way, it's not a great effect.
Furthermore, bankruptcy record don't easily disappear. The chapter 13 bankruptcy can stay on your record for 7 years and a chapter 7 bankruptcy can remain for 10 years. Although of course, the negative impact of this could also lessen as time pass by and as you start being a good payer with less debts.
This is why in general, filing for bankruptcy is not recommended. In fact, it should be the last resort. If possible, go for other options first before you go for bankruptcy filing.