Bankruptcy is a serious financial decision that will affect your Credit score and debt to-income ratio for a decade. However, if you’re struggling to pay your bills and have no other viable options, it may be the best option for you. 

It can stop creditors from collecting on unsecured debts and eliminate certain secured debts, such as mortgages and car loans. It can also help you settle your debts with a reasonable repayment plan. 

1. Credit Score 

Credit card issuers and lenders report financial activity to the credit bureaus, which use formulas to arrive at a person’s FICO score. Late payments, credit card balances that exceed the limit and debts that enter collection are all major factors that can hurt a person’s score. 

However, if your credit score is already low due to missed payments and accounts in collections, a bankruptcy filing may not have much of an impact on your score. The Huffington Post reports that bankruptcy’s effect on a person’s score is largely based on where their score started. 

Lenders will be cautious about offering credit to someone who recently filed for bankruptcy. If they do, they will likely charge an astronomical interest rate and terms. If you can begin rebuilding your credit after bankruptcy by making on-time payments and keeping your credit card balances low compared to the limit, your score will gradually recover. Eventually, after two years, you’ll be able to get credit on more favorable terms. 

2. Credit Report 

Many people believe that filing for bankruptcy will ruin their credit report for life and make it impossible to get a loan or new card. The truth is that it will negatively impact their credit score, but how bad this is depends on how much debt they had, how many accounts were included in the filing and if there are any inaccurate items listed on the report. 

If you choose to file for Chapter 7 bankruptcy(Opens Overlay), the court will liquidate your assets and use the proceeds to discharge, or wipe out, unsecured debts like credit cards and personal loans. Not all types of debt are discharged through, including child support, alimony and most tax debts. 

If you choose to file for Chapter 13 bankruptcy, the court will consider your regular income and devise a plan to repay creditors over a period of time. This type of bankruptcy is less of a credit wipeout and will typically stay on your report for up to seven years. For more information and accurate legal advice, bankruptcy lawyers in Harrisburg, PA can help you gain more information regarding bankruptcy and if it is the right decision for you. 

3. Job Prospects

One of the main reasons people are hesitant to file for bankruptcy is because they fear that it will affect their employment opportunities. Whether you file for Chapter 7 or Chapter 13, the case becomes public record, meaning your employer can find out about your bankruptcy if they really want to, though they are not required to do so. In addition, if you are unable to pay your debts and creditors are garnishing your wages, the courts will notify your employer of the situation. 

Generally, neither federal nor local employers will consider bankruptcy when hiring employees, though private companies may take it into consideration. Even with the law’s protections, it is important to be upfront about your bankruptcy in a job interview so that you can avoid any misunderstandings. Jobs that involve finances or money handling can be particularly sensitive, and some employers will decline to hire someone who has filed for bankruptcy. Those with security clearances also face unique challenges when it comes to employment because the CIA, FBI and other government agencies require their employees to undergo a background check. 

4. Living Conditions 

The decision to file for bankruptcy is a serious one that should not be made lightly. It is important to consider future financial goals, how it will impact your credit and if you can afford the costs of filing. 

While filing for bankruptcy can be a major life event, it provides many advantages for debt relief. Filing for either Chapter 7 or Chapter 13 Bankruptcy can discharge much of your debt, allowing you to move forward with your finances. 

Filing for bankruptcy also puts a stop to all repossessions and foreclosure proceedings as well as ends creditor harassment. Creditors can be fined for continuing to call, mail or contact you in any way. The automatic stay that goes into effect when you file for bankruptcy protects against eviction as well, giving you time to provide your landlord with a larger security deposit or proof of income. You can also offer to prepay the last month’s rent or even be willing to take a co-signer.