Filing for bankruptcy is likely the last thing you want to do, but there are times when you get in over your head financially. Your need to file may be the result of circumstances completely out of your control.
However, before you file for bankruptcy, you should understand how this process can impact your financial future.
Credit reporting
Your credit will reflect your bankruptcy for several years. If you file for Chapter 13, your credit will reflect this for up to seven years from the date you filed. However, a Chapter 7 filing can last up to a decade. However, you can begin to rebuild your credit, but it takes patience.
Credit score impact
Your bankruptcy filing directly impacts your credit score. In fact, it could drop up to 240 points, depending on your original score. This drop in creditworthiness directly impacts your ability to get credit.
Loan or credit terms or delays
In most cases, you cannot qualify for a loan for the first two years. In addition, you may experience limits to the amount of credit you can receive during that period. However, if you receive approval, you will likely have unfavorable credit terms, such as high down payments and interest, or the bank could require a cosigner or collateral to secure the loan. You may also receive denials for a mortgage or vehicle loan.
Financial strategy
After you receive a discharge on your bankruptcy, you should start rebuilding your credit, but do so responsibly. To avoid becoming overextended again, only apply for two to five consumer credit cards, and always pay your bills on time. Try to only charge minimal amounts on your cards.
As you consider your financial options, get help from a credit counselor and create a financial plan to protect your future.