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Filing for bankruptcy might be a challenging thing to do. Although it solves your financial problems, it does create others. Some of those problems can be really serious too. Filing for bankruptcy will affect every financial aspect of your life. Thus, it’s important to consult a proficient legal firm like The Recovery Law Group, regarding the short and long term effects of bankruptcy before filing for it. You can reach them at Recovery Law Group or 888-297-6203.
Chapter 7 and Chapter 13 are the highly sought-after forms of bankruptcy. In Chapter 7 bankruptcy, you get rid of your debts by losing some of your precious assets, while in Chapter 13 bankruptcy you repay the debts by adhering to a court-ordered monthly repayment plan that is affordable for you. Both of these bankruptcy cause a decline in your three-digit FICO credit score, the amount of which depends on your credit score before the bankruptcy (expected decline is of around 150 or more points).
Most of the financial aspects of your life depend on your credit scores. Thus, a decline in the credit score poses a lot of problems. Some of these problems are:
- Borrowing money will either be impossible for you or you’ll get it with a high rate of interest.
- In case you lose your house in foreclosure, you’ll face problems in renting another one. Most landlords will ask for higher security deposits. Some might completely refuse to rent it to you.
- Getting a new car will be difficult unless you’re buying it with cash. You will either get a loan with a higher interest rate or won’t get it at all.
- Even getting a new mobile plan will become arduous, as the service providers might get worried whether you’ll be able to pay your bills every month or not.
- You’ll have to live as a cash consumer for a year or two, as getting things on credit will become difficult for you.
Apart from a decline in the credit score, there are a few more adverse impacts of filing for bankruptcy.
- Bankruptcies won’t disappear from your credit report easily. A Chapter 7 filing will remain on it for 10 years, while a Chapter 13 filing will be there for 7 years. If you’ll pay your bills on time and won’t be under any new debts, the negative impact of these filings on your credit report will decrease.
- Filing for bankruptcy will cause a decrease in your credit-based insurance score which will, in turn, increase your vehicle insurance payment. Insurers charge such motorists with higher rates of interest as such people tend to file maximum claims.
- Even Fannie Mae and Freddie Mac won’t be able to approve your mortgage loan for the first 2 years of your bankruptcy. The Federal Housing Administration (FHA loans) won’t let you apply for a mortgage before the completion of one year of your bankruptcy.
- Filing for bankruptcy can even keep you off getting a new job, as the employer might ask for an employment screening, which is an overview of your credit report. It lists Chapter 10 and Chapter 13 bankruptcies, which are less than 10 and 7 years old, respectively. However, the employer can’t run the screening without your written permission. But still, the presence of bankruptcy might stop your employment, especially if it’s in a financial sector or law enforcement.
Thus, it is advisable to find better options than bankruptcy. Bankruptcy should be your ultimate last option.