A bankruptcy won’t discharge all your debts
When most people talk about filing for bankruptcy they mean a chapter 7 bankruptcy. While it will discharge many of your unsecured debts, it won’t allow you to get rid of all of them. For example, a chapter 7 bankruptcy won’t get rid of student loan debts nor will it discharge alimony, child support or back taxes. It can also do nothing about secured debts such as your mortgage or automobile loan.
A bankruptcy puts your possessions at risk
A chapter 7 bankruptcy is known as a liquidation bankruptcy because its purpose is to liquidate your possessions so that your creditors can be paid off. While you will be allowed to keep the equity in your home (to a certain amount, depending on where you live), the equity in your vehicle, your furniture and personal possessions and any tools that are required in your job, you could lose other important assets. For example, if you own a boat or motor home, you can kiss it goodbye. Ditto that treasured antique you inherited from Aunt Ruth.
A bankruptcy could cost you a job
It’s true that a bankruptcy will stay in your credit report for only seven or 10 years (depending on the credit reporting bureau) but it’s a public record that will stay with you forever. This means that 15 years from now a perspective employer could see that you had had a bankruptcy and decide to not hire you.
A bankruptcy will increase your interest rates
You may be able to get credit in two to three years after your bankruptcy but it will come at a much higher price. As an example of this, if you have a credit score of 750 or better and apply for a mortgage, you should probably be able to get an interest rate of around 3%. But if your credit score was 642 to 659, that interest rate would jump to 4.143%. You could also expect to pay a higher interest rate for a credit card or a personal loan.
A bankruptcy will damage your credit score
Speaking of credit scores I have seen one estimate that a bankruptcy will drop your credit score by 200 points. This means if your score had been in the 700s, it would drop to somewhere in the 500s and you might not be able to get any credit at all.
Why debt settlement is a better path to debt relief
Many families facing serious problems with debt have turned to debt settlement rather than filing for bankruptcy. This is because it has several advantages. For one thing it will not have as serious an impact on your credit score as it will probably drop it by 60 points or fewer. Second, debt settlement is a more ethical way to handle your unsecured debts because your creditors will be paid something, instead of being totally stuck for whatever you owe. And finally, you’ll have a payment plan you can afford that should get you debt free in 24 to 48 months.
Get more information
Contact us today by phone or by filling in the form on this page to get more information on debt settlement and a free estimate. That way, you can see for yourself why debt settlement might be a much better path to debt relief than filing for bankruptcy.