December 9th, 2008
How Does Bankruptcy Affect Your Credit?
The worst negative record that you can possibly have on your credit report is a bankruptcy. The impact that a bankruptcy has can last for many years, as this negative mark on your credit report can last for as long as a decade. You may not be able to get approved for credit or a loan at all during the first few years after you have filed for bankruptcy, because it has a very large and very negative impact on your perceived capability to repay an obligation.
Despite the negative impact that bankruptcy has on your credit, it is still an option to consider if you find yourself in very serious debt that you cannot seem to get yourself out of. If you are living from one paycheck to the next and have no way of paying off old debts, then bankruptcy is an option that it may be worthwhile to look at. Your credit rating is definitely going to be in ruin while you recover from your bankruptcy, but it will also allow for you to finally dig yourself out of what is a certainly overwhelming hole, reestablishing good credit over time. At the same time, filing for bankruptcy can stop collection agencies from calling and harassing you, and can stop other debt related problems from plaguing your life as well.
However, you need to realize that bankruptcy is not an easy way out of your debt, or a quick fix either. The procedure associated with filing for bankruptcy can be truly emotionally draining for many years. Following a bankruptcy, you will be ineligible for loans, credit cards and many other types of credit. There will also be additional restrictions that you need to adhere to. You could also face rejection when it comes to finding a job, because employers are legally allowed to check your credit when they decide whether or not to hire you.
Before you decide to file for bankruptcy, it is vital that you sit down and discuss your situation with credit counselors working with reputable counseling organizations. They have the experience needed to advise you on steps that you can take to fix your situation, as there may be alternatives to bankruptcy that you can try before you completely destroy your credit report in favor of a fresh start. If bankruptcy truly is the only option, then they will tell you this, and will advise you on how to go through the process.
Bankruptcy can be a depressing process but it can give you the chance to begin again with a fresh credit report and without the debt burden that you had before. You should begin your credit repair campaign now, and continue even after filing bankruptcy. As you cultivate healthy money management habits like saving and budgeting, you will find it easier to keep yourself from going into debt again.
Photo Credits: 1
Related posts:
- Dear Credit Karma… Fixing Credit After Bankruptcy Dear Credit Karma, How do I start rebuilding my credit after filing Chapter 7 bankruptcy? Bankruptcy will deal a devastating...
- How Will the Housing Crisis Affect You? Housing prices are continuing their downward trek, and many consumers are facing negative equity and wondering just how bad things...
- Personal Finance Terms from The Intern Lesson 1: As a personal finance writer, I have to learn and fine-tune my financial services lexicon if I am...
- How Will Bank Failures Affect You? As the news gets into a frenzy over the recent bank failures, the failed bid for a bailout and the...
- What is the Biggest Obstacle For Your Credit Score? If you are struggling with a low credit score and can’t seem to make any progress, it is important to...
If you do decide to file bankruptcy, plan ahead for credit repair. Most student loans are not dischargeable in bankruptcy, so make sure that you pay them on time before and afterwards. After bankruptcy, try and get a secured credit card and maintain it properly. Secured credit cards require you put money into a bank account in case you don’t pay the credit card. Make sure you find a reputable one!
If you are married and your spouse did not declare bankruptcy, see if you can get added to his or her credit card as an “authorized user”. It would also be greatly beneficial if you have a credit card that is not included in the bankruptcy, such as one with little or no balance. You should be able to keep this card afterwards. Just be sure not to try and reduce the balance on this card before you file bankruptcy (talk to your attorney about this).
Thanks respecting sharing. Like always, on the well-to-do and right on objective!
What is the typical jump in credit score when a Chapter 7 bankruptcy falls off? It is not set to fall off for another two years, and I am at a 700 according to CK. I plan to have all credit cards payed off by then, so I am assuming that the impact will only be in the underwriting process and not necessarily in the score itself. Can you confirm this for me?
Our bankruptcy was finalized in Feb 09. All creditors even those with no balance closed the credit line. I now have managed to get two secured cards, the one Capital One offers was rejected and stated because I had a bankruptcy on my credit reports. Just trying to get by and not making any big moves and sticking to living within my means (tough going cold turkey after having all that credit and a good paying job). Hey not the greatest but I sure am not freaked out every day about credit card bills and an over weight mortgage and second mortgage. I did trade in two cars with a loan before my credit started sinking and bought a new car so that is good and it should last for many years. I now buy used cars and enjoy fixing them up and keeping them for daily use. Will see what happens as time goes on.
The Capital One card was an UNSECURED card