If you’ve been thinking about filing for bankruptcy and it feels like an extremely difficult decision, know that you’re not alone. Bankruptcy might seem like an easy way to erase your debts — or a decision that’s going to seriously impact your finances, credit history and ability to secure future loans. Both observations are correct.
Bankruptcy is a situation that offers both relief and challenges. Every individual must weigh the pros and cons of moving forward with bankruptcy to determine if it’s right for their situation or seek the advice of an experienced bankruptcy attorney to explain the benefits and longer-term consequences of this choice. To help you understand what filing for bankruptcy is like, let’s review the common long- and short-term impacts of filing for bankruptcy protection.
What’s the Short-Term Impact of a Bankruptcy Filing?
Consumers facing heavy debts typically file for either Chapter 7 or Chapter 13 bankruptcy. Your debts get eliminated in Chapter 7, but the person filing often loses valuable assets to help pay off these debts. That can potentially include your house and car.
Under Chapter 13, a judge establishes a repayment plan where you pay back some or all of your debts with a monthly payment you can afford. As long as you keep up with your court-ordered payments, collection agencies will stop calling you, and it’s possible some of your creditors might even be willing to forgive some of the debt you owe.
Is bankruptcy a last-resort to tackling my debt?
Some financial advisors recommend bankruptcy only as a last resort, and there’s a reason for that. Bankruptcy can have a quick impact on your three-digit FICO credit score, which is certain to drop. That’s going to make it more difficult for you to qualify for loans, and your existing credit cards will likely be canceled since your credit card company or bank routinely checks for bankruptcy filings as a risk factor.
When you do start applying for loans or new credit cards, chances are you’ll also be looking at higher interest rates, making it more expensive to borrow money. Lenders rely heavily on your credit score to determine if you qualify for loans or new credit.
A Chapter 13 bankruptcy filing remains on your credit report for seven years, while a Chapter 7 filing stays there for a decade. So your bankruptcy filing will follow you for a long time. If you lost your home during your bankruptcy filing, it can hurt your ability to find an apartment to rent if the landlord runs your credit and sees a bankruptcy on your credit report.
What are the Long-Term Effects of Bankruptcy?
For the first several years after your bankruptcy, you’re likely to need to live as a cash consumer with limited access to credit. In other words, if you don’t have the available cash to pay for something, you don’t buy it.
On the other hand, it’s important to keep in mind that bankruptcy gives you a fresh start. You no longer have debts hanging over you, so this is your opportunity to get your finances back on track and start demonstrating that you can manage your money.
The key here is being patient. Let’s say you do get new credit cards but at a higher interest rate. Use those cards sparingly, and only for emergency situations. Your credit is going to improve over time if you discipline yourself.
After bankruptcy, you’re no longer dealing with harassing calls or letters from creditors. As soon as you hire an attorney for your case, creditors are legally required to stop contacting you if you request them to, which is sure to ease much stress.
If you know that an employer or new landlord will check your credit report while doing a background check, you could consider filing a letter with credit agencies that explains the extenuating circumstances leading to your bankruptcy filing. It’s also important to remember that bankruptcy filings are much more common today, meaning there is less stigma attached to it. In many instances both employers, landlords, and even lenders look at far more than just a bankruptcy on your record.
Trust an Experienced Bankruptcy Attorney in Louisiana
When you’re considering this process, a good bankruptcy attorney can help you understand which approach to bankruptcy is going to work best for your situation.
Orum Young Law has more than 35 years helping the people of Northeastern Louisiana file for bankruptcy and regain control of their finances. In those 35 years, we have filed more than 20,000 cases and experienced unbelievable success. We help our clients understand the basic aspects of their case, including how to determine their expenses and handle any necessary filings.
Contact us today at (318) 450-3192 to schedule your free case review and start protecting your family’s future.