Bankruptcy
If your debts have become unmanageable or you're facing foreclosure on your home, you might be thinking about declaring bankruptcy. While bankruptcy may be the only way out for some people, it also has serious consequences that are worth considering before you make any decisions.
For example, bankruptcy will remain on your credit report for either seven or 10 years, depending on the type of bankruptcy. That can make it difficult to obtain a credit card, car loan, or mortgage in the future. It could also mean higher insurance rates and even affect your ability to get a job or rent an apartment.
- Bankruptcy can do severe damage to your credit score and should be considered as a last resort.
- As an alternative, you may be able to negotiate with your creditors and work out a payment plan or other satisfactory arrangement.
- If you decide to file for bankruptcy, you have two basic options: Chapter 7 and Chapter 13.
- A Chapter 7 bankruptcy will sell off many of your assets to pay your creditors. In a Chapter 13 bankruptcy, you keep the assets but must repay your debts over a specified period.
What to Do Before Filing for Bankruptcy
Bankruptcy is generally considered a last resort for people who are deep in debt and see no way to pay their bills. Before filing for bankruptcy, there are alternatives that are worth exploring. They are less costly than bankruptcy and likely to do less damage to your credit record.
For example, find out if your creditors are willing to negotiate. Rather than wait for a bankruptcy settlement—and risk getting nothing at all—some creditors will agree to accept reduced payments over a longer period of time.
In the case of a home mortgage, call your loan servicer to see what options may be available to you. Some lenders offer forbearance (postponing payments for a period of time), repayment plans (such as smaller payments stretched over a longer period), or loan modification programs (which might, for example, lower your interest rate for the remainder of the loan).
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