The choice to file bankruptcy is one that shouldn’t be taken lightly. It will have an effect on your future credit and could also cause issues with your self-image and even your reputation. However, it is also important to keep in mind that filing for bankruptcy can greatly improve your short-term quality of life, stopping harassing phone calls and letters and allowing you to begin a fresh start with your finances.
One of the biggest worries that most people have when they consider filing for bankruptcy is whether or not the process will ruin their credit. While filing bankruptcy will have an effect on your credit, it will not ruin your credit or your financial future.
Will Filing for Bankruptcy Ruin My Credit?
In simple terms, filing for bankruptcy will not actually ruin your credit. In fact, after a relatively short amount of time —typically about 1 year— most people who file find that their credit score increases by up to 125 points.
Many people think that their credit report and their actual credit are one in the same but this is incorrect. Your credit is actually your ability to borrow money from lenders. Your credit report is a summary of all your payments, including your credit history. While many people may have perfect repayment history, if you currently have more outstanding bills than you can afford you essentially have no credit. This means that no one will loan you any more money but you will still have a credit score that lenders can reference. So it is important to keep in mind that once you file for bankruptcy, you will be left with little to no credit. But this can also mean that you are a better credit risk for lenders because you can now afford payments on new debts.
What Are the Pros and Cons of Filing for Bankruptcy?
As with any financial decision, bankruptcy will come with several different pros and cons. Before you file, be sure to consider these common pros and cons so that you feel comfortable making a decision that is right for your current financial situation and lifestyle needs.
- CON – Bankruptcy can definitely have a negative effect on your credit for some time, with Chapter 7 remaining on your credit report for up to 10 years.
- PRO – While a Chapter 7 bankruptcy will stay on your credit report for years, filing for relief from debt typically takes about 3 to 6 months. If you decide against Chapter 7 when you are eligible, keep in mind that any missed debt payments, repossessions, defaulted loans and lawsuits can also hurt your credit.
- CON – You will most likely lose any luxury possessions and any property that you own that is not exempt from sale by a bankruptcy trustee.
- PRO – Most states make it possible for the majority of the things you own to be exempt from the bankruptcy process. This also means that you can keep any salary or wages you earn after filing and keep all of the property you buy afterward as well.
- CON – You will lose all of your current credit cards.
- PRO – Typically, most people are eligible to get new credit cards within 1 to 3 years of filing. But keep in mind that these new lines of credit will most likely have much higher interest rates.
- CON – Filing for bankruptcy will not eliminate your student loan debt.
- PRO – While bankruptcy doesn’t get rid of your student loan debt, it does get rid of your other debts, allowing you to pay down those loans much more quickly.
- CON – Filing now could make it harder to do so again in the future if more financial burdens come along. Once you complete Chapter 7, you cannot file again for 6 years from the day that you officially filed.
- PRO – While you can only file Chapter 7 every 6 years, you can file Chapter 13 if you find yourself dealing with another financial disaster in that time frame. You can also repeatedly file for Chapter 13 but keep in mind that each filing will appear on your credit report.
- CON - You are not eligible to file for Chapter 7 if you previously filed Chapter 13 or Chapter 7 within the last 6 years.
- PRO – If you are able to obtain a Chapter 13 discharge in good faith after you have paid at least 70 percent of your unsecured debts, the 6 year ban no longer applies.
While there are many pros and cons that come with filing, bankruptcy can be a great option for a variety of different situations. If you are afraid that bankruptcy will leave you with ruined credit, it’s important to keep in mind that there are many options for you to rebuild your finances following bankruptcy. Additionally, as you wait for your credit score to build back up, you can spend time paying off other important debts like your student loans and child support payments.
Does Filing Bankruptcy Mean I’ll Never Be Able to Buy a Home?
If the amount of your debt is so great that you are considering filing for bankruptcy, you are not likely to be in a situation where you can afford a down payment on a house. However, bankruptcy can give you the ability to start saving for a down payment. The bankruptcy process will also free up any income that you do have to help you qualify for a mortgage later on.
It is also important to keep in mind that bankruptcy will make it much more difficult to get a mortgage on a home but not impossible. Most people qualify for a mortgage within 2 to 3 years after bankruptcy and there are even special lenders who specialize in “high risk” mortgages. But even with that characterization, try not to let yourself feel down about being labeled a high risk because you have taken some difficult and very major steps to solve your financial problems.
Do I Need a Bankruptcy Attorney?
From the outside, bankruptcy may seem like a very simple process but in reality, it is a complicated area of the law. Without proper guidance and advice, you could end up with much more work than you were initially prepared for. Filing for bankruptcy before allowing our experienced New Jersey bankruptcy attorneys the opportunity to review your assets could also result in the loss of thousands of dollars in assets to a bankruptcy trustee. Bankruptcy law can be very complex and should not be taken lightly. If you are considering filing for bankruptcy, be sure to consult with an experienced bankruptcy attorney before making any final decisions about your financial future.
Schedule an Initial Consultation with Our Experienced Bankruptcy Attorneys Today
Don’t let the fear of bad credit or ruined credit prevent you from taking control of your financial future. While there are many different factors to consider when filing for bankruptcy, the pros usually outweigh the cons.
Worried about how filing bankruptcy may affect your credit score and your financial future? Contact our knowledgeable and experienced team at (973) 870-0434 or visit us online today for more information on bankruptcy and schedule your free initial consultation.
Whether you need to completely eliminate your debt through Chapter 7 bankruptcy, or need to reorganize your credit payments through Chapter 13 or Chapter 11, we are well qualified as a full-service bankruptcy law firm for people in these and other New Jersey counties: Passaic County, Hudson County, Essex County, Bergen County, Morris County, and Sussex County. Call us today at 973-870-0434 or toll free 888-412-5091.