How Bankruptcy Can Affect You

Many find the topic of bankruptcy confusing. A state or federal court can grant an individual or company this legal status when it is unable to pay off outstanding debt. While it is an effective way to eliminate debt, there are a lot of other details you must know.

Some may be blinded by the fact that bankruptcy seems to magically wipe away debt — from a portion of it to all of it.

“It may prevent or delay foreclosure on a home and repossession of a car. It can also stop wage garnishment and other legal actions of creditors attempting to collect debts,” explains.

However, bankruptcy is typically used as a last resort because it does have long-standing consequences, such as in the areas of credit score/report and future ability to use money, among others.

Drawbacks to Filing for Bankruptcy

If you are at the point where bankruptcy has crossed your mind, your credit report is already likely considerably deteriorated. Bankruptcy may not hurt it much worse for a period.

While it is an effective way to eliminate debt, there are a lot of other details you must know.“Still, because of the long-term effects of bankruptcy, some experts believe it may be beneficial only if you have more than $15,000 in debts,” states.

What are these lasting impacts? According to, bankruptcy remains on record for seven to 10 years, depending upon which type you file. Most file under Chapter 7, which discharges all qualifying debts and stays on your credit report for 10 years. The second most common is Chapter 13, which involves a mixture of debt repayment and debt forgiveness, so it is not derogatory to your credit for quite as long.

While these negative marks are present, your ability to use money is drastically decreased. It could prevent you from obtaining new lines of credit, as well as causing problems when you apply for jobs or in other instances in which credit checks are run.

You may also want to consider the fact that bankruptcy doesn’t always erase all financial obligations. Alimony, child support, some taxes, student loans and various other debts are not discharged through bankruptcy claims. Do your research before filing.

Furthermore, you may be putting your friends and family, who tried to help you in the past, in a tough spot by filing for bankruptcy, as it does not protect those who cosigned on your debtor accounts.

“Your co-signer agreed to pay your loan if you didn’t or couldn’t pay. So when you declare bankruptcy, your co-signer still may be legally obligated to pay all or part of your loan,” explains

Finally, filing for bankruptcy is a complex and costly process. Not only can you expect lawyer fees, as an attorney is recommended to help you decide which chapter to file and can aid you along in the process, but there are other financial stipulations involved as well. Bankruptcy laws mandate that all potential filers attend credit counseling prior to filing and also take pre-discharge debtor education courses. Both of these involve fees.

Other Options to Consider

Because of the negative repercussions of filing, experts suggest looking into other options before turning to bankruptcy. Try debt consolidation, which combines your loans to better help you make regular, timely payments, or debt settlement, which entails negotiating with your creditors to lower your balance. For more details or information, talk to your financial institution or read up on your options on the Federal Trade Commission’s informational pages at


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