If you’re struggling financially and assessing your options, you may be confused by what you’ve heard about bankruptcy. Some sources hold out Chapter 7 bankruptcy as the ultimate “do over,” while others warn that your credit will be destroyed and your options limited for years to come. Chapter 13 bankruptcy offers a very different type of solution, which many people are unfamiliar with–a three to five year repayment plan.
Of course, the benefits and possible downsides of filing bankruptcy will differ depending on your circumstances. For example, some debts can be eliminated in Chapter 7 bankruptcy and others cannot. Talking to a bankruptcy attorney is usually the best way to determine exactly what impact bankruptcy will have for you. This general overview will help put some of the hype (good and bad) in perspective.
Bankruptcy Won’t “Destroy Your Credit”
You probably don’t need anyone to tell you that bankruptcy doesn’t look good on your credit report. And, bankruptcy typically remains on your credit history for 7 or 10 years, depending on the type of bankruptcy you file. So, it’s easy to see why many people fear the impact of bankruptcy on credit.
However, there are a few additional factors to consider when anticipating the impact of bankruptcy on credit. First, most people who have reached the point of considering bankruptcy have already damaged their credit scores and amassed a long list of delinquent accounts on their credit histories. Second, although bankruptcy remains on a debtor’s credit report for 7 or 10 years, the impact of the filing diminishes over time. The rate of improvement depends on how much effort is invested in keeping accounts up to date and rebuilding, but often starts immediately.
A 2014 study by the Federal Reserve Bank of Philadelphia determined that the average Chapter 7 bankruptcy filer emerged from the bankruptcy case with a credit score about 80 points higher than at the time of filing. That’s especially significant when you consider that many Chapter 7 bankruptcy cases wrap up in just a few months. Chapter 13 filers saw an increase, as well.
Your Employer Can’t Fire You for Filing Bankruptcy
Many people are concerned about the impact of filing bankruptcy on their careers. If you’re already struggling financially, you obviously can’t afford to lose your source of income. Fortunately, legislators recognized that, and made it illegal for an employer–public or private–to fire an employee solely because he or she filed for bankruptcy.
Bankruptcy Won’t Solve all of Your Problems
For many people, Chapter 7 bankruptcy is like hitting a re-set button. Large credit card debt, medical bills and other unsecured debt can be eliminated, giving the bankruptcy petitioner the breathing room to rebuild without playing catch-up, juggling past-due bills and fielding constant calls from creditors.
However, a fresh start is only what you make of it. Making the most of Chapter 7 bankruptcy requires assessing what went wrong with your finances, making a clear plan to avoid those issues in the future, and then commit to following the plan. Bankruptcy can wipe the slate clean, but it won’t balance the budget if you’re spending more than you earn. That’s up to you.
Talk to a Bankruptcy Attorney
Like every other possible solution, bankruptcy serves some people better than others. And, the type of bankruptcy that might be most helpful varies with specifics such as:
- Whether debt is primarily secured or unsecured
- Whether the debtor has valuable assets he or she wants to keep
- The amount of income available
An experienced bankruptcy attorney can assess your circumstances and help you determine whether Chapter 7 or Chapter 13 bankruptcy might be the solution you’re looking for. Schedule your free bankruptcy evaluation right now.
Tags: bankruptcy and credit, Chapter 7, truth about bankruptcy
