What are the Consequences of Bankruptcy?

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Q. What are the consequences of bankruptcy?

Dear Reader,
Bankruptcy is a legal process that can eliminate many of your debts and even help you keep some of your property. It is the fresh start some people need to rebuild their finances, yet it has long-term negative consequences.

For instance, a bankruptcy will stay on your credit report for 7–10 years, depending on the type you file, even if discharged. Once this information makes it your credit report, it will be harder for you to get new credit in the near future. For instance, it will difficult your chances of getting decent terms on a mortgage loan, if at all. In fact, most lenders will only give you a mortgage loan four years after your discharge. Even the Federal Housing Authority requires applicants to wait at least two years after the bankruptcy discharge to apply for a mortgage loan.

Also, good credit card offers will be hard to get. Interest rates may be through the roof and credit limits may be more restrictive. You can expect these terms to improve over time as you rebuild your credit. So, think wisely about managing your credit after bankruptcy because it could be more expensive than before. It is also important to note that bankruptcy cannot discharge all of your debt. It cannot free you from unpaid taxes, child support or student loans. So, if you have any of these debts, you will have to plan accordingly to repay them, even during a bankruptcy process.

Bankruptcy also influences other aspects of your life beyond your finances and credit report. A filing becomes part of your public record, which means that some of your personal information becomes accessible to the public. Potential employers, banks, and clients can access this information and use to evaluate a possible job offers or loan.

People usually consider bankruptcy after they’ve explored other solutions such as debt management or debt consolidation. Sometimes, these debt repayment options may not be enough. If you are considering bankruptcy, before you talk to a lawyer, consider discussing your situation with a certified credit counselor from an NFCC member agency. They can evaluate your debt repayment options to help you determine an appropriate course of action and educate you about what to expect from the process. The more information you have about your choices, the better decisions you will make. Counselors are always available to help.

Bruce McClary, Vice President of Communications
Bruce McClary is the Vice President of Communications for the National Foundation for Credit Counseling® (NFCC®). Based in Washington, D.C., he provides marketing and media relations support for the NFCC and its member agencies serving all 50 states and Puerto Rico. Bruce is considered a subject matter expert and interfaces with the national media, serving as a primary representative for the organization. He has been a featured financial expert for the nation’s top news outlets, including USA Today, MSNBC, NBC News, The New York Times, the Wall Street Journal, CNN, MarketWatch, Fox Business, and hundreds of local media outlets from coast to coast.

If you have a question about your own specific financial situation, don’t hesitate to submit your question to our experts today! If you would like a thorough review of your personal financial situation, contact one of our nonprofit credit counseling agencies today!

*Some questions have been shortened and/or altered for publication purposes while others have been published as is.