Bankruptcy is a huge financial decision to make. When you are faced with this possibility, you might find that everyone has some advice, opinions or cautionary tales. It is important for you to vet these before you heed them. There are many misconceptions about what bankruptcy entails.
Before you decide that you are going to file bankruptcy, you need to think carefully about the following points. This can help you to decide what you are going to do to recover your financial future.
Not an easy way out
Bankruptcy is not an easy way out of debt. You will likely have to lose some assets or make repayments to the bankruptcy trustee. While your immediate financial situation might improve due to the filing and subsequent discharge, you will have to deal with negative impacts. A Chapter 7 bankruptcy will remain on your credit report for 10 years after it is discharged, while a Chapter 13 will stay for seven years.
Your credit score
Filing for bankruptcy will cause your credit score to drop. There are several factors that determine how much it will decrease. Typically, the higher your current credit score is, the bigger the drop. The total of the discharged debts and the number of accounts impacted, as well as the number of accounts still in good standing and the balance on those, will all affect how the bankruptcy impacts your credit score. A person with a higher credit score can expect a drop of at least 200 points, while a person with average or low credit scores can anticipate a drop of 130 to 150.
Effects reduce over time
As time elapses, the impact on your credit will diminish. Once the case is discharged, you might be able to start rebuilding your credit. Often, you will need to start the process by getting a secured card. This gives you a chance to prove your creditworthiness without being a risk to the credit issuer. In most cases, you can move on to unsecured cards after you have a solid payment history with the secured card.
During the bankruptcy process, you must ensure that you are paying attention to the tips and tactics that you are shown. They can help you to use your money responsibly and can assist with rebuilding your credit.