How Can Filing for Bankruptcy Affect My Future?
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Deciding to file for bankruptcy is not easy, but it can relieve the burden of excessive debt and give you a fresh start. However, it is essential to recognize that bankruptcy can significantly impact your financial and personal life. For instance, filing for bankruptcy can lower your credit score and even hinder your job prospects.
Whether you are contemplating bankruptcy or simply seeking to understand its implications, exploring how this decision could affect your future is worthwhile.
Bankruptcy is a process that allows individuals and businesses unable to pay their debts to seek relief from financial hardship by eliminating or restructuring their debts. Some assets may be liquidated during bankruptcy to repay creditors, while others may be forgiven. Filing for bankruptcy can have long-lasting impacts, and it is crucial to consider all options before setting for bankruptcy.
If you decide to file for bankruptcy, you will need to choose the bankruptcy type to file. The most common types of bankruptcy are Chapter 7 and Chapter 13 Bankruptcy. Chapter 7 bankruptcy helps you to eliminate debts by paying off your creditors using non-exempt assets such as family heirlooms, second cars, second homes, or boats. Chapter 13 bankruptcy, on the other hand, is a reorganization bankruptcy, where you develop a new payment plan to repay your debts, partially or in whole.
Implications of Bankruptcy on One’s Future
Filing for bankruptcy can affect your future in several ways. These include the following:
Damage to Your Credit Score
One of the most significant impacts of bankruptcy filing is your credit score. Your credit score indicates your ability to repay your debts, so filing for bankruptcy causes substantial damage to your credit. If you have a low credit score, there may be little impact compared to the significant drop to an individual with a good credit score before filing for bankruptcy.
Impact on Future Employment
Future employers can check your credit report when considering you for a job; a bankruptcy record can make you look financially irresponsible. This could damage your chances of getting a job, especially in professions that require a high level of financial responsibility, such as accounting, payroll, and banking.
Impact on Mortgage Application
Filing for bankruptcy can also impact your ability to apply for a mortgage. Lenders may look into your credit report when approving you for a mortgage. While you may still obtain a mortgage after filing for bankruptcy, you may be required to pay a huge down payment or higher interest rates and fees to compensate for the added risk.
Your Cosigners May Be Held Responsible
If you have cosigners on any of your debts, their credit score may also suffer a hit. In addition, they may be forced to repay any unsecured debt with their names on it when you file for bankruptcy. This can cause a strain on your relationship with your cosigner.
Difficulty Obtaining Future Credit and Loans
Even after the bankruptcy is discharged, lenders may still see you as a high-risk borrower. This could result in higher interest rates, lower credit limits, or even denial of credit. However, you can rebuild your credit by making timely payments and avoiding using credit until your finances improve.
You May Still Be Responsible for Some Debts
Bankruptcy does not discharge all debts. You will still be required to repay non-dischargeable debts such as student loans, alimony, child support, taxes, and debts obtained through fraud.
Bankruptcy Stays on Your Credit Report for a Long Time
Chapter 7 bankruptcy can stay on your credit report for up to ten years, while Chapter 13 bankruptcy can stay for up to seven years. This can make it challenging to obtain credit in the future since many lenders may consider you a high-risk borrower.
Bankruptcy Does Not Fix the Root Problem
While bankruptcy can offer relief from overwhelming debt, it does not fix what caused the unmanageable debts in the first place. Without a solid debt management plan, you could repeat the same mistakes and need to file for bankruptcy again.
Contact the Knowledgeable Bankruptcy Attorney in Tucson, Arizona Today
Given its future implications, we understand that filing for bankruptcy can be a nerve-wracking experience. If you are overwhelmed by debt and considering filing for bankruptcy, the experienced Tucson bankruptcy attorney, Eric Ollason, can provide guidance and support during this challenging time.