Filing for bankruptcy will not permanently ruin your credit but will negatively affect your credit for some time. However, this effect eventually wears off, making bankruptcy often a necessary and freeing step on the road to financial security and a better credit score.
It is best to file your bankruptcy petition with help from a professional legal representative. A Orlando bankruptcy lawyer can ensure you understand the process and its consequences—including the likely effects on your credit—before you get started.
What Impact Does Filing Bankruptcy Have on Credit?
The answer to this question depends on which bankruptcy chapter you choose. For example, one of the differences between Chapter 7 and Chapter 13 is that the former has a more significant impact on your credit score than the latter because:
- Chapter 13 requires you to pay back at least part of your debt, while Chapter 7 does not require you to make any further payments to your creditors.
- Chapter 13 requires a steady source of income, which implies greater financial solvency. Most debtors who file for Chapter 7 do not have as much cash or other assets to draw upon.
That said, if you file for bankruptcy, your credit may already be in bad shape. Thus, there is no point worrying if filing for bankruptcy will ruin your credit. On the contrary, bankruptcy could give you the stability and structure you need to rebuild your credit rating.
The Consequences of Having Bad Credit
A low credit score tells banks, landlords, car dealers, and others that a person is financially unreliable. These entities may worry that you will be unable to pay back whatever money they lend you, so it will be extremely hard—if not impossible—to take out a loan or make any large purchases.
Over time, as your situation stabilizes and you start making regular payments again, your credit will improve. Eventually, it could be like bankruptcy—and all the events leading up to it—never happened.
Other Downsides of Declaring Bankruptcy
In addition to lowering your credit score, the bankruptcy court may force you to sell (liquidate) specific assets to help you pay off your remaining debt. You would also have to contend with the social stigma of bankruptcy, which people often unfairly equate with failure and irresponsibility.
No matter your circumstances, you may still feel ashamed and embarrassed to seek help. However, you need to realize that you are not alone. You deserve help as you search for ways to deal with your debt.
To consult with an experienced bankruptcy lawyer today
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Positive Effects of Filing Bankruptcy
When you are struggling financially and facing the prospect of bankruptcy, it is all too easy to get caught up in the negative aspects of your situation. However, bankruptcy is also a vital source of relief for many debtors—individuals and businesses alike. If you really cannot pay your debts, bankruptcy allows you to:
- Keep your assets: According to the U.S. Courts, Chapter 7 allows most people to eliminate their debt without giving up their home and other strategic assets.
- Stop creditors: From the moment you file for bankruptcy, your creditors are no longer allowed to foreclose on your house or ask for any payments. You can then focus on improving your situation.
- Discharge debts: Bankruptcy does not eliminate all categories of debt, but it does make debt more manageable. Depending on the chapter you file under, you might come up with a reasonable repayment plan or discharge your debts immediately.
- Start fresh: This is the most critical thing bankruptcy can do for you. Once your case is over, you will be free of the debt that has made life so difficult.
Bankruptcy Is Not Easy but Can Be Helpful
This is not to say that filing bankruptcy is easy. It is a prolonged process that requires careful consideration and a good deal of legal work.
Our law firm helps clients facing bankruptcy by handling all the legal tasks, including filing paperwork and negotiating with other parties. As your lawyer manages your case, you have more time to figure out what you will do once everything is done, and you are free from overwhelming debt.
Is Filing Bankruptcy Worth the Effect on Your Credit?
Only you and anyone else involved in your financial affairs—such as your family or business partners—can decide if bankruptcy is right for you. A bankruptcy law firm can help you make the best possible decision by:
- Explaining the pros and cons of each bankruptcy chapter.
- Suggesting possible bankruptcy alternatives, such as meeting with a credit counselor.
- Ensuring you know what to expect during and after the bankruptcy filing process, so nothing that happens surprises you.
- Reviewing your financial records to understand your situation better and prove that you qualify to file for a particular bankruptcy chapter.
- Submitting financial records and other paperwork to the court within applicable deadlines.
- Helping you develop a repayment plan that your creditors will accept (if you file for Chapter 13).
- Determining which assets you can keep and which, if any, you may have to liquidate (if you file for Chapter 7).
- Keeping you updated as your case moves through the system.
Filing for bankruptcy is one of the most difficult decisions you will ever have to make. However, you do not have to make it alone. Your attorney will work closely with you to help you through this process with as little stress and uncertainty as possible.
Want Help Filing for Bankruptcy?
Bogin, Munns & Munns provides innovative and fair representation throughout the bankruptcy process. Are you worried that filing for bankruptcy will ruin your credit? Or have questions about which bankruptcy chapter is right for you? Our bankruptcy attorneys can answer them. Call now for a free case review.
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