Financial Refreshment: Bankruptcy Consequences

At times, financial debt can get so overwhelming to the point where an individual or a person who owns a business finds it too difficult to get up-to-date on payments. In a difficult situation as such, a person or business may find it necessary to file bankruptcy. Bankruptcy is a legal process that involves a person or business that finds it difficult to pay back debts that are way overdue and currently in an outstanding state. Although bankruptcy reduces or completely gets rid of debt, the process comes with many consequences. Here are a few bankruptcy consequences to expect of ever you find yourself in this situation:

  • Decline in your Credit Report
  • Negative impact on your Credit Score
  • It becomes Public Record

But even when facing these bankruptcy consequences, you can look forward to starting over financially by getting your finances back on track. Below is further information on bankruptcy consequences and restoring your finances.

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Consequence #1: Decline in Your Credit Report

The greatest impact that bankruptcy has on your finances is that it can damage your credit report. This bankruptcy consequence can negatively impact your chances of buying anything on credit in the future. This includes getting a credit card, buying a home, getting a new car, or getting a bank loan. A bad credit report can also affect your chances of landing a good job or even renting an apartment. Bankruptcy may be a good idea to erase financial debt, but to have it affect your credit report could be more hurtful in the long run.

Consequence #2:  Negative Impact on Your Credit Score

Your credit score is a number that is based predominately on your credit history. That means, if your credit history is bad, then your credit score will be low. This bankruptcy consequence must be highly considered because it can create long-term damage to your credit. According to Fair Isaac Corporation, better known as FICO, filing for bankruptcy is a “very negative event” and will be a factor of your credit score for the length that it remains on your credit report. The FICO score is widely used to calculate credit score. However, the corporation claims that this bankruptcy consequence will gradually go away over time.

Consequence #3: It Becomes Public Record

Bankruptcy can be seen as an embarrassing process to go through. You do not want others to know of your financial woes and that you were not able to keep up with payments or that your debts have become unbearable. Another bankruptcy consequence is that if you try to keep your bankruptcy a secret, it is impossible because the process becomes public record.  Your bankruptcy information becomes available online through the PACER service (Public Access to Court Electronic Records. Future creditors are able to look in to the public records and see that you have filed for bankruptcy even after it has been erased from your credit report.

Steps to Restoring Your Finances

Bankruptcy is often seen as a way for people to freshly start their finances. However, it can take many years to get rid of the damage that bankruptcy consequences can cause. In 2008, a study conducted by a group of researcher at Ohio State University concluded that people who filed for bankruptcy, in terms of income, homeownership, and net worth, need approximately 10 to 20 years to catch up with individuals who have never filed. But do not be discouraged; bankruptcy is just a milestone to restoring your finances. Below are important steps to consider after filing bankruptcy and during your period of dealing with bankruptcy consequences:

  1. Catching Errors: Make sure to pay close attention to every credit report that you receive. It is mandated by law that you receive one free copy of your credit report every year from each of the 3 most important credit bureaus—Experian, TransUnion and Equifax. It is best to ask for a report from one of each bureau every four months as a means to keeping track of your credit reports throughout the entire year. Also, if you have been rejected by a credit card company, insurance company, or employment, you are then qualified to receive a free credit report as well.
    To receive credit reports more frequently, you can request them directly from one of the bureaus, and for no more than $40, you can obtain a combined report from all three bureaus.
    Once you have your reports, FICO suggests that you look over them for any errors. You want to make sure that all proper accounts were included in your bankruptcy. Also, look for any signs of identity theft. If any errors are found, notify the credit bureau immediately.
  2. Removing The Evidence: Make sure that bankruptcy is removed from your credit report at the appropriate time. Depending on the level of bankruptcy filed, the removal could take up to 10 years or just 7 years. Contact a credit bureau to find out how long the removal will take.
  3. Rebuilding Your Credit: Reestablishing your credit could take longer than you expect, but it is worthy of the time and effort. A great way to start rebuilding your credit is to start paying bills on time and avoiding late fees and charges. Using a brand new credit card would be a good starting place as well if you were able to receive a new credit card. Contact a local bank or credit union to see if you would qualify for either a conventional credit card or a secured credit card.

At times, finances can take a negative turn and leave you in piles of debt and frustration. There is a savior to relieve you of all financial stress, but filing for bankruptcy has its flaws. Although bankruptcy allows for financial refreshment, bankruptcy consequences can leave in regretful of making that decision. However, after the suffering the consequences, you still have the ability to restore your finances and live a happy and financially stable life.