In 2010, more than 1.5 million Americans filed for bankruptcy. Unfortunately, many bankruptcy attorneys do not adequately explain the effects of bankruptcy to their clients. Put simply, the total financial and emotional costs of filing bankruptcy can almost never be truly quantified. Even the credit score impact alone can be devastating. For example, when you file for bankruptcy, every credit account you decide to include within that bankruptcy will become listed on your credit reports as an “included in bankruptcy” account. Usually, the more of those that appear, the worse your credit score. Additionally, the bankruptcy filing and bankruptcy discharge listings themselves (separate from the “included in bankruptcy” listings) will also appear in the court records section of your credit report. Because so many negative items are attached to one single bankruptcy proceeding, removing all traces of that bankruptcy filing may seem daunting. For that reason, and if at all possible, you should avoid bankruptcy.
Credit Impact of Filing Bankruptcy
Bankruptcy could keep you from getting new loans
Bankruptcy directly impacts your credit score, and your credit score impacts your ability to qualify for any loan, including a car loan. For example, the next time you plan to purchase a car, a lower credit score could cause you to either pay a much higher interest rate which can radically increase the overall cost of the purchase. Credit repair after bankruptcy may be one solution towards getting you back on track with your credit reports.
Your car insurance premiums can increase because of a bankruptcy
Insurance companies look at your credit history to determine what kind of a “risk” you present to them. Your premiums are based on that risk. Just as a series of car accidents makes you a risky person to insure, , a bankruptcy makes you look riskier regarding whether or not you’ll actually pay your bills — which can directly impact your rates.
Bankruptcy filing and credit repair takes time away from work and family
Leading up to your bankruptcy filing, you may have to spend a significant amount of time on the phone negotiating payments and explaining late payments to creditors. You also will probably spend a lot of time going through mail, responding to letters, and making copies of documents as proof or your efforts.
Moreover, the process of filing for bankruptcy takes time. Bankruptcy-related paperwork, as with most legal documentation, can require a great deal of patience to complete. A lawyer or bankruptcy specialist may complete the tasks more quickly (and likely with fewer errors), but you would still need to meet with that individual or firm to discuss your situation. Every state is different, but you will most likely need to take time to complete a petition (this starts your bankruptcy), a document with list of your creditors, a document detailing your financial history, and a plan explaining how you will move forward.
Depending on the type of bankruptcy you file, you may need to meet with the court or a trustee to discuss the case on one or more occasions.
While the bankruptcy listing is on your credit reports, you may often have to explain that mark on your credit and supply additional paperwork when trying to open new accounts, refinance, and request insurance premium quotes. This is all the more reason to focus on credit repair immediately after bankruptcy.
Bankruptcy could interfere with job opportunities
Employers are allowed to ask if you have filed for bankruptcy in the past. In their minds, this may be an indicator of whether or not you are a responsible individual. Unfortunately, some employers still review an applicant’s credit report. So while they may not be able to ask you about a bankruptcy, it may certainly color your prospective employer’s unconscious (or conscious) opinions.
So while bankruptcy can be devastating, it has to be reported correctly on your credit reports. If it isn’t, the advice of a good attorney can help you leverage the multiple consumer rights you have to ensure that you are protected. Talk to a credit repair company to learn about alternatives to bankruptcy and credit repair after bankruptcy.