Bankruptcy is an extreme solution for extreme levels of unmanageable debt. As with any extreme solution, filing for bankruptcy can present many significant drawbacks and possible negative outcomes.
Bankruptcy affects credit scores for 7–10 years
Most commonly, credit scores damaged by a bankruptcy filing will prevent a filer from being offered credit for many years and the mark of bankruptcy on a credit report will not disappear for at least 7 years, 10 years in the case of chapter 7 filings. The significance of a bankruptcy on a credit report can be diminished over time by rebuilding credit but the mark it makes on a credit report cannot simply be erased. A damaged credit report means a bankruptcy filer will likely have trouble getting loans for several years following discharge and may have to pay high interest rates once they are offered credit.
Some employers require employees to have no bankruptcy history
Although most employers do not directly care about a person’s credit history, jobs that require their employees to be bonded may disallow applications for employment from individuals who have recently filed bankruptcy. Although it seems cruel, the practice relates to the process of bonding which will carry varying rates for an employer depending on risk factors an employee exhibits. Bankruptcy is a significant risk factor in the bonding rate determination process and often prevents employers from hiring individuals who have recently filed for bankruptcy.
Bankruptcy can take years to discharge
Although some forms of bankruptcy are quick, others, such as chapter 13 bankruptcies, take years. Up until a chapter 13 bankruptcy is discharged, filers often live a very lean life style. For between 3 and 5 years chapter 13 bankruptcy filers must commit ALL of their disposable income to the repayment of their dischargeable debts. This means that wage earners living under a chapter 13 only keep enough money to live off; enough for food, utilities, and housing, and give the rest to a trustee who distributes it among creditors.
Bankruptcy does not eliminate all debt
The other most common disadvantage of bankruptcies is that they do not discharge all debts and can often leave the most significant debts an individual faces active following discharge.
If you are considering bankruptcy and need to know more about what filing would mean, contact us at the Norton Law Firm. Speak with one of our attorneys today and learn more about your options and what bankruptcy will mean for you and your family.
- How do I rebuild credit after a bankruptcy?
- Can my employer find out I filed for bankruptcy?
- How can I erase negative items on my credit report?
- Can I remove a bankruptcy from my credit report after all of my debts are discharged?
- How do I get credit if I have a poor credit score and negative items on my credit report?