Filing for bankruptcy

Understand Bankruptcy Before You File

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Unemployment or heavy debt may have you struggling to meet your financial obligations, but is bankruptcy really your best option?

If you’ve already explored how to negotiate better credit card rates, tightened your personal budget or looked for additional income, debt might seem impossible to overcome and filing for bankruptcy might appear to be the only choice you have.

Even if you feel that you’ve run out of solutions, read on to understand bankruptcy before you file.

Recognize the Different Types of Bankruptcy

There are different types of personal bankruptcy, and each type will impact your credit report and your finances differently. With Chapter 7 bankruptcy, a person does not repay any debts included in the filing. On the other hand, filing Chapter 13 bankruptcy allows you to pay back some, or sometimes all, of their debt with their lenders.

Identify How Bankruptcy will Impact Your Credit Score

The most damaging thing you can do to your credit is file for bankruptcy. This is because each account, now marked derogatory as a result of the bankruptcy, drops your score. Furthermore, once your accounts are closed, you no longer have any positive history to help show you can be a responsible lender, and your score is dropped even more.

How Long the Bankruptcy Will Stay on a Credit Report

The type of personal bankruptcy you file will determine the length of time the negative item will remain on your credit report. A Chapter 7 bankruptcy will stay on your credit report for 10 years, while Chapter 13 bankruptcy will remain for 7 years.

Explore Alternatives to Bankruptcy

Licensed credit counselors can help you analyze your personal situation, review your debts and determine the type of repayment plan that is most feasible. In some cases, you might be eligible to consolidate your loans or qualify for special terms with your creditors.

Regardless of which personal bankruptcy you choose to file under, you will likely be required to take a personal financial management course before clearing the negative item from your credit report and in time, building a positive credit score.

Before attempting to file for bankruptcy, it’s most important to note that you must qualify under specific rules, based on your disposable income and any extraordinary circumstances, before the court will allow you to file.


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This article is provided for general guidance and information. It is not intended as, nor should it be construed to be, legal, financial or other professional advice. Please consult with your attorney or financial advisor to discuss any legal or financial issues involved with credit decisions.

Published by permission from ConsumerInfo.com, Inc.  © 2013 ConsumerInfo.com, Inc.  All rights reserved.