How does Bankruptcy Affect Your Life?
Bankruptcy is an option for people who find themselves in over their head in debt. Often times, such overwhelming debt is due to divorce, illness or loss of employment. If you find yourself in financial distress, sometimes bankruptcy is the best option for you as it allows you to develop a plan to repay your debt or have your debt discharged through a liquidation of your assets (see What Type of Bankruptcy Should I File?). When considering bankruptcy, it is important to learn if bankruptcy is, in fact, the best option for you and how filing bankruptcy may affect your life. Consulting a bankruptcy attorney about bankruptcy and its effect on your life is always a good idea before submitting a petition for bankruptcy.
It is important to understand that bankruptcy provides you with an opportunity to rebuild your credit; it does not provide you with a clean slate. What bankruptcy will do is give you the opportunity to start over as your past debts will be discharged and you will have the opportunity to live a debt free life. This is not a “clean slate” as your bankruptcy will adversely affect your credit report, making it difficult to reestablish good credit, although not impossible.
If you file bankruptcy, it will appear on your credit report for 10 years if you filed Chapter 7 or Chapter 11 and will appear on your credit report for 7 years if you filed Chapter 13. Having this information on your credit report has the potential to affect your ability to receive credit in the future. While finding future credit is not impossible, it is often provided at a higher interest rate and unavailable unless the credit is secured. For example, a credit card company may not offer you credit without an annual.
While a bankruptcy will appear on your credit report for up to 10 years—depending on the type of bankruptcy you file—most people seeking to buy a home are eligible for a mortgage within two-years of filing bankruptcy. All creditors view bankruptcy differently and if you have maintained a consistent pattern of paying off debt after filing for bankruptcy, some lenders may reward your new credit behavior. If you are planning on buying a home before you file bankruptcy, it is a good idea to discuss this with a bankruptcy attorney who should be able to advise you how bankruptcy will affect your future home buying plans.
Bankruptcy may also affect your ability to lease rental property and find employment. Employers are able to ask if you have ever filed for bankruptcy before. Even if it has been a long time since your bankruptcy, you must disclose this information or risk having your employment terminated for lying about your background. Rental property owners may also check your credit history before offering you a lease. Many rental property owners are not willing to provide housing to individuals with a bankruptcy on their record.
Also, when you file for bankruptcy it may affect your ability to file for bankruptcy in the future. For this reason, it is important to discuss your financial situation with a bankruptcy attorney so he or she can help you determine if bankruptcy is the best option for you at this time; in some instances, it may be better to wait. A bankruptcy attorney should also be able to inform you how bankruptcy will impact your life.
In addition to all of the physical damages of bankruptcy, filing for bankruptcy is stressful and emotional. Bankruptcy can take a toll on your health, your relationships and your self-esteem as it upsets your sense of security. An experienced bankruptcy attorney should be able to help you see the light at the end of the tunnel and provide you with a plan to help you through your difficult financial situation.