Between 2005 and 2017, over 12.8 million people filed for bankruptcy.
Filing for bankruptcy is a stressful ordeal. Even the act of filing for bankruptcy costs money, compounding the situation to make it even worse.
If you’re deep in debt and considering filing, Chapter 7 or Chapter 13 bankruptcy you should know a few things about life after bankruptcy first. Let’s take a closer look at the consequences before you commit to a decision.
Life After Bankruptcy
You may think that life after bankruptcy and free of debt will be a dream come true. However, filing for bankruptcy brings several serious side effects along with it.
First, let’s look at what filing for a bankruptcy can and cannot do.
How Bankruptcies Work
So, how does bankruptcy work? It is a legal process that is run by the federal bankruptcy courts. It helps people eliminate their debt or repay a smaller portion of what’s owed.
Do You Get out of All Debts If You Declare Bankruptcy?
The answer is both “yes” and “no.”
- eliminate your credit card debt
- wipe out medical bills debt
- stop creditor calls
- prevent wage garnishments
- pause an eviction or foreclosure
Bankruptcy can not:
- stop child support
- cease alimony obligations
- eliminate student loan debt
- wipe out tax debt
As you can see, even bankruptcy has its limitations when it comes to certain types of debt.
Consequences of Filing for Bankruptcy
Once you file for bankruptcy, your credit score is going to take a hard hit. It is possible it’ll plummet by several hundred points. It takes many people years to get their credit score raised back into “Good” standing.
Property loss is another consequence of bankruptcy you might face. If your house was put up as collateral when you took out a loan, the creditor might have enough leverage to seize the property.
The last huge consequence is that your bankruptcy filing will remain on your credit report for years. During this time, it’ll be next to impossible for you to get a credit card, loan, or mortgage.
Even if you do manage to secure any of these, you will be forced to pay a higher interest rate. People who have filed bankruptcy are seen as high-risk for defaulting on payments.
Alternatives to Bankruptcy
If you can, avoid bankruptcy. It’s one of the best bankruptcy tips you’ll find.
An alternative to bankruptcy is debt consolidation. This type of loan will combine all the high-interest debt into a single, lower-interest loan.
Read a blog about debt consolidation if you think this might be a better alternative for you.
Bankruptcy Isn’t Your Only Option
Sometimes, bankruptcy is unavoidable. Because of the long-lasting impact that bankruptcy has on a person’s life, consider all other options before making your decision to file.
Life after bankruptcy can be difficult. The road to recovering your credit score and being offered lower interest rates is a long one.
We hope this article gave you some valuable information on filing for bankruptcy. Please take a moment to read our other articles before you go.