If you're considering bankruptcy, you know that there are upsides and downsides to filing. A bankruptcy can give you a new start, but it can also impact your credit. Is it a good idea? Here are some pros and cons to consider.
What are some benefits of Chapter 7 bankruptcy?
A bankruptcy will stay on your record for many years, but the bankruptcy itself only takes between three and six months. That means that in as little as a half year, you could be financially free from everything that held you back. Your credit will be damaged, but within a few years, you can start rebuilding it slowly. If you want to get a mortgage, you'll need to consider a lender who works with "bad risks," while the bankruptcy stays on your record. Or, save up during this time and be prepared to buy when the bankruptcy drops off your credit report.
You can file a Chapter 7 bankruptcy once every six years. If, for some reason, you struggle financially again before those six years are up, you have the option to pursue other forms of bankruptcy, like Chapter 13 bankruptcy.
What are the pitfalls of Chapter 7 bankruptcy?
You will have the bankruptcy on your record for up to 10 years. Your credit score will be very low, to the point that most people consider it to be ruined. All your credit cards will be closed, and you won't likely be able to get a mortgage unless you already have one.
If you owe large amounts of tax, student loans, alimony or child support, it's unlikely that your responsibility for those debts will be reduced or eliminated. You will need to explain how you got into financial distress to a judge before a bankruptcy can be approved.
If you're still concerned about the decision ahead of you, a legal professional can help you decide on one of several options open to you, from credit counseling to debt organization plans.
Source: FindLaw, "Pros and Cons of Declaring Bankruptcy under Chapter 7," accessed Jan. 05, 2017