As you may have already learned, your debt doesn’t just have to do with you paying people back for money you borrowed. It can also seriously affect future purchases, such as buying a car or a home. Anytime you need to apply for credit, if you have a past with financial problems, then you may not be approved, or you may end up with high interest rates. Things become even more difficult in the aftermath of a bankruptcy. Remember that a bankruptcy will remain on your credit report for as long as 10 years, and that means it can damage your credit for a very long time.
While you cannot make the bankruptcy disappear, there are some things you can do to improve your credit in the wake of such financial difficulties.
Filing for bankruptcy is always a decision you need to take seriously and with plenty of forethought. It’s a good idea to sit down with a bankruptcy attorney prior to filing in order to make sure you understand all bankruptcy entails so you know what to expect. Depending on the chapter you file, a bankruptcy will show up on your credit report for between seven and 10 years. This could affect a number of things in your life, including whether or not you can qualify for a mortgage.
The Reality of Qualifying for a Mortgage
Let’s dispense with one of the myths surrounding filing bankruptcy right away. Will it have an effect on when you can qualify for a mortgage? Yes. Will it mean you have to wait upwards of 10 years to get one? No. It’s possible, but definitely the exception and not the rule.
Everyone has at least one credit card these days, if not a few. That means that most of us have credit card debt. While some amount of credit card debt is probably healthy, it can become overwhelming to the point that you have no choice but to take drastic measures in order to get free of it. Although there are a number of ways you can work credit card debt down, if you have a lot of it, a chapter 13 bankruptcy may become the only real solution you have.
Chapter 13 Bankruptcies
From time to time, some people have used chapter 7 bankruptcies to erase their credit card debt, but this is far from ideal. Normally, experts recommend a chapter 13 bankruptcy if something like credit card debt is the major concern.
With a chapter 13, you’ll file schedules with the court that include all the relevant financial information about your life. This will outline your credit card debt, but it will also list things like other debts you have, your income, expenses, property you own and more. You’ll also have to submit a plan which will show how you will go about paying off the secured debt you’re currently struggling with. Your secured creditors and the court will have to approve of this plan before your bankruptcy is approved. Usually, these plans take between three and five years to pay off.
There are many reasons people end up filing for bankruptcy, but they all amount to the same thing: escalating debt has become too much to deal with. By filing for bankruptcy, people get the breathing room they need to get their financial lives back in order, and they stand a very real chance of bouncing back from earlier missteps. Unfortunately, many filers have found that this isn’t what happened when they came out the other end of their bankruptcy.
Bankruptcy and Credit Scores
Obviously, bankruptcies are going to have an effect on your credit score. However, for the most part, your score was probably already fairly low when you filed bankruptcy because of a high liability to asset ratio. Some people have great credit scores when they end up filing though, so theirs take much more noticeable hits.