Filing bankruptcy is a big step that can negatively affect aspects of your life other than your credit score. Before consulting with a bankruptcy attorney, consider the following:
- Bankruptcy impacts more than your credit score: Although filing bankruptcy may provide relief from credit card debt, it is a judicial proceeding that remains on your credit history for up to ten years. No matter how hard you work to re-establish your credit standing, a bankruptcy filing can severely limit your access to credit and favorable credit terms.
- Employers may check your background and/or credit: If you work in financially sensitive careers such as banking, finance, or retail, potential and current employers may check your credit report as a condition of employment. You'll be asked to authorize access to consumer reporting information, and employers can learn of your bankruptcy, which is a matter of public record.
- Mortgage companies, landlords, and insurance companies: If you're applying for a mortgage, rental housing, or hazard insurance, be ready to authorize access to your credit reports. Landlords may require an additional security deposit from those with bad credit, and insurance companies may charge higher premiums to clients who've filed bankruptcy.
- Bankruptcy isn't credit repair: Secured debt, including mortgage loans, home equity lines of credit, auto loans, federal and state income taxes, and federally guaranteed student loans are not eliminated by filing bankruptcy. Creditors may not be able to pursue collections until the court establishes which debts can be discharged, but secured loans must typically be repaid, and tax debt and federally guaranteed student loans are exempt from bankruptcy protection.
- There are alternatives to filing bankruptcy: If you have too much credit card debt, you may benefit from credit counseling. Non-profit credit counseling agencies can work with your credit card companies to reduce monthly payments and fees. If you cannot repay student loans, contact your lender and ask about temporarily deferring payments or consolidating your student loans. Professional tax advisors can assist with resolving income tax debt.
- Seek financial advice from neutral sources: Non-profit credit counseling can be a great way of getting debt help. If you determine that bankruptcy is your only option, bankruptcy attorneys can explain the process, timeline, and your legal rights, but they earn their living filing bankruptcy petitions. It's important to understand all potential options before filing bankruptcy.
- Credit repair: there is no easy or fast solution: Although bankruptcy can wipe your financial slate clean of credit card debt, it will also negatively impact your credit score. Credit repair services may suggest that they can "erase" bad credit, or instantly "fix" credit problems, but the only way to recover from bankruptcy is to use and manage credit wisely over a period of years.
Bankruptcy is a legal remedy that can help you address insurmountable financial problems, but considering alternative options can help you manage credit card debt without causing major damage to your credit.
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About the Author:
Karen Lawson started writing stories about birds and surfing at an early age. For more than ten years, she enjoyed a productive corporate career in mortgage banking before moving to Reno, Nevada in 1997. Karen earned BA and MA degrees in English (specializing in writing) at the University of Nevada. Significant areas of research and writing include truth and ethics in creative nonfiction, medical humanities, and the symbolism and lore of birds in American literature and culture. Karen has taught English at a community college, is writing a collection of poetry, and enjoys birdwatching and walking her basset hounds.
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