Filing for bankruptcy is often seen as a way to start over with a clean slate. That clean slate comes at a price that you should consider when choosing whether to file for bankruptcy and what type of bankruptcy you should file for.
Many individuals immediately jump to the Chapter 7 filing, which allows you to discharge unsecured debt and gives you a clean slate in as little as 6 months. Some may have to file for Chapter 13, which means your debt will not be resolved for 3 to 5 years. Understanding the difference between a discharged debt and the bankruptcy filing being removed from your credit history is important. Talk to your bankruptcy attorney to find out more.
Having a record of filing for bankruptcy of any type significantly reduces your ability to be approved for credit. In today’s world, a poor credit rating can also impact where you work and where you can live as well. When debt is discharged, the debt is removed from your credit report. The bankruptcy filing will remain on record. For a Chapter 7 filing, you can expect to wait up to 10 years before it is removed from your credit history. The bankruptcy filing for Chapter 13, which requires you repay a portion of your debt, will be cleared off your report in 7 years.
Before you file for bankruptcy, think through carefully the plans you have for the next decade. If you are just starting out in your career, it may be better to opt for a payment plan for several years and not lock down your score for 10 years with a bankruptcy filing. If you own your home and have steady employment, filing for bankruptcy may be a good idea. Remember to consider the other potential impacts, with a bankruptcy filing you may not be approved to cosign for college loans for your children.
Declaring bankruptcy is not a cure all, but must be entered into with your eyes wide open. While it may provide fast relief from creditors and put more money in your pocket sooner; the long term effects may change the plans you have for your life. Think through all of your options and choose the one that allows you to do more and keep opportunities open to you in the future. Planning for debt reorganization may be a better long term solution than going for a straight discharge on unsecured debt as you can regain your credit viability sooner.