June 11, 2021
Filing for bankruptcy is never an easy decision. There are many things to consider when deciding if it is right for you. There are two main types of bankruptcy for individuals: Chapter 7 and Chapter 13. This blog will focus on Chapter 7.
Chapter 7 bankruptcy, or liquidation bankruptcy, is the kind of bankruptcy that is often portrayed in media. It allows individuals who are unable to pay their debt to discharge most of it. Once you file, an automatic stay takes place and your creditors must cease all actions pertaining to the collection of your debt. You will likely have to sell some of your assets to pay down some of the debt, however some things may be considered exempt. If you decide to file for bankruptcy a lawyer can help you decide if this is the correct option for you. If you go forward with filing Chapter 7 bankruptcy here are six ways it may affect your everyday life.
You may have difficulties obtaining a good credit card.
When you file for bankruptcy your credit score will likely drop by 100 or more points. The negative mark bankruptcy leaves on your credit score can last for up to 10 years. Most “good” credit cards, with benefits and low interest rates, will require you to have a credit score of 700 or above. While you are building your credit back up, you may still be able to get a credit card, but it will likely be one with a higher interest rate and fees.
You may have a hard time getting a mortgage.
Once you file for bankruptcy you will have a waiting period before you can apply for most types of mortgages. For example, FHA loans are the most flexible allowing you to apply for a loan as soon as 1 year if you can prove extenuating circumstances, or 2 years without. Other types of loans have their own waiting periods. Once you have completed the waiting period you will probably need to meet a credit score minimum and other requirements. Securing a mortgage after bankruptcy is by no means impossible, but there will be hurdles.
You may have high interest rates if you choose to finance a new car.
Sometimes during a bankruptcy proceeding you will be forced to sell your car to pay down your debt. If this occurs and you need to buy a new car but cannot pay cash, car dealerships may take advantage of the situation and charge you extremely high interest rates, occasionally up to 29%.
You will no longer receive collection calls.
Once you file, collection agencies will not contact you anymore. Not having to deal with harsh creditors may significantly improve your daily life.
You may feel relieved.
Once your bankruptcy proceeding is finished you may feel immediately relieved. Now that you have been discharged of your debts, you can move forward without the constant stress of large amounts of debt hanging over your head. You may even find you look at the world in a more positive light and other aspects of your life may improve as well.
You may notice a decrease in the amount of fights you are having at home.
If you have a partner, you might find that your relationship improves almost overnight. Financial strain is one of the biggest stressors on any relationship. With your debt being eliminated you can focus more on your improving your relationship rather than your financial situation and you may fight less frequently.
These are just a few of the ways filing Chapter 7 bankruptcy could affect your daily life. Deciding to file for bankruptcy is a very personal decision, everyone’s situation is different. Like with everything in life, there are pros and cons to filing and only you and your lawyer can decide what those will be for you.