Filing for bankruptcy may feel like the last resort/only solution available when you have reached a point where you don’t know how to get out from underneath financial debt. The problem is, many are fearful of taking this drastic step due to the negative impact it can have on your credit score. In some cases, your score could drop anywhere from 160 to 220 points. We can all agree, seeing your credit score plummet can feel like witnessing a terrible car crash. Depending on your original score, this much of a decrease could discourage vendors from providing you with a loan, and thus make building your score back up nearly impossible.
According to a credit repair Austin company, many people make the assumption that if they wait it out, the problem will eventually dissipate. You can finally pay back all of the creditors that you have been struggling to reimburse for years, right? Filing for bankruptcy mainly wipes the slate clean and rids you of all that debt. Any business seeking money from you will be paid back, taking that burden off of your shoulders.
What should you take into consideration should you decide to venture down this route? Here’s a look.
Statute of Limitations
In most states, there is a four-year limit of when a company can move your debt into a credit collection. Would you be willing to have your delinquency wait the four years? Or, are you seeking a solution that would resolve your debt quickly and therefore bankruptcy would be an appropriate course of action?
What Are the Types of Bankruptcy?
There are two types of bankruptcy. Chapter 7 pretty much pays everything back right away. Then there is Chapter 13, which will establish a payment plan. Chapter 7 legally gets you off the hook of paying back your debt, but you have to prove without a doubt that there is no feasible way you can pay back funds owed. The courts will ultimately determine what assets are considered exempt, and what fall into the non-exempt category. Anything deemed exempt, you will be allowed to keep.
Chapter 13 does not get debtors off the hook but instead sets up a payment plan for you to reasonably pay everything off. What’s good about this type of bankruptcy filing is that it will hold off foreclosures, allowing you to remain in your home while you repay owed funds.
The Lingering Effects of Bankruptcy
You should remember that like anything, bankruptcy leaves a paper trail. And as we said before, it could negatively impact your credit score. So how long will your bankruptcy remain on credit record? By law, bankruptcy cannot stay on your credit for more than ten years, but Chapter 13 will only remain on file for seven years. Because Chapter 7 usually means the situation is dire, it will stay on your score for a decade. Not to worry, you won’t have to do anything or jump through hoops to get these markings off your credit score. The law states it cannot stay on for more than seven to ten years.
In dire situations, you may feel that there is no other route to take but to file for bankruptcy. Certainly, in severe cases, this may be the only choice. However, be sure to do your research and understand the repercussions of filing for bankruptcy before making the decision to move forward.
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