What Happens If You Declare Bankruptcy?
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If you are planning on declaring bankruptcy in order to get rid of all the debts you have accumulated, you are most likely wondering what the consequences of declaring bankruptcy are. Declaring bankruptcy necessitates an informative decision as it is a major financial move that could seriously affect various aspects of your life.

Every individual’s financial situation is different; however, regardless of whether you choose to file your bankruptcy under Chapter 7 or Chapter 13 of the U.S. Bankruptcy code, listed below are some of the usual consequences of filing for bankruptcy.

• Weakened Credit- When you file for bankruptcy, the action is taken negatively and will definitely bring down your credit score. Additionally, the bankruptcy will stay in your credit history for 7to 10 years. However, if you practice good financial habits after you file for bankruptcy, the effect will eventually diminish and be replaced by the positive marks on your credit report.

• Difficulty in Qualifying for Loans- Because bankruptcy is one of the worst items that can be seen on your credit report, filing for one will make it extremely hard for you to qualify for loans and mortgages in the months following the bankruptcy. Most people will only qualify for sub-prime or bad credit loans, which have extremely high interest rates that make it hard to pay them off.

• Difficulty in Finding a Job- Conducting a credit check as well as a background check has become part of many companies’ hiring processes. If you have debts and other financial liabilities on your credit reports, you can expect to experience some difficulties in getting employed, and getting a job is likely to become even more difficult if your potential employer sees a bankruptcy on your credit report.

• Cancellation of Credit-Related Contact- If you decide to file for bankruptcy, you will be under a form of legal protection called automatic stay. This special court order means that creditors, banks, and debt collectors can no longer contact you to threaten you with lawsuits, repossessions, and foreclosure and they cannot even communicate with you through the mail.

• A Clean Financial Slate- Declaring bankruptcy is a serious decision, and if you go through with it, despite the temporary financial setbacks, you will be able to start over with a clean financial slate (given that your bankruptcy filing goes normally, of course). If all goes as it should, you have the chance to rebuild your finances and learn from your mistakes, which should lead to better credit in the future.

• Potential for Better Credit in the Future- Of course, this is not a direct consequence of bankruptcy, which will actually make your credit rating go down for a while. However, if you learn from your mistakes and practice smart financial habits—including reviewing your credit reports regularly, paying your credit card balances when they are due, and making your monthly mortgage payments on time—after filing for bankruptcy, then you have a chance to make your credit stronger than before.

You may be asking how it is possible to rebuild your credit after you file for bankruptcy considering the difficulty you will have when it comes to qualifying for loans and for regular credit cards. An effective way to help you boost your credit rating is to apply for a secured credit card. Secured credit cards are meant for people with bad or non-existent credit and work in the same way regular credit cards do; however, you need to make a deposit that, in turn, will serve as your credit card limit. If you use your secured credit card responsibly and pay the balance on time and in full, you should see an improvement in your credit rating.

If you review the consequences mentioned above, you will see that not everything that happens after your bankruptcy is bad. Filing for bankruptcy is meant to relieve you of the burden of your debts, especially if you are barely making ends meet and are really struggling financially. Before you declare bankruptcy, however, keep in mind that although the outcome can be positive, there are negative consequences that you will have to deal with as well.


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