Over recent years, filing for bankruptcy has become a common practice. Because of this, the negative stigma has almost vanished. With 1.5 million people filing bankruptcy in 2010 and even more expected to file in 2011, it definitely is the most popular form of debt elimination. Filing bankruptcy can benefit a debtor in many ways, including wiping out unsecured debts, stopping foreclosure on your family home, stopping wage garnishment, and even keeping the utilities from being turned off. The number one reason that pushes people over the edge and into bankruptcy is the constant bombardment of harassment from the creditors. When a bankruptcy is filed, the automatic stay gets put in place and prevents any type of collection attempts including phone calls. Bankruptcy almost seems too good to be true, but there is a dark side to filing. Filing bankruptcy is not a fix all for every financial problem and when someone decides to file they need to consider the pros and cons and the final outcome of their personal situation. This is why it's always advised to get a consultation with a bankruptcy lawyer before making your final decision.
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The main downside of filing bankruptcy is that it can be reported on your credit for up to 10 years from the filing date. A Chapter 13 bankruptcy will stay on your credit for up to seven years because it allows the debtor to partially pay back their creditors. Even though Chapter 7 bankruptcy remains on your credit for 10 years you can improve your scores after filing bankruptcy. In many cases, individuals filing chapter 7 end up being debt-free because all their unsecured debts are completely wiped out. When an individual is debt-free and slowly rebuilds their credit, their debt ratios are very low which will improve their credit score quickly. Because of this there are many lenders offering credit to people just because they have no debt.
There are many fears that the debtor will never be able to buy a home after filing for bankruptcy. This is untrue as long as proper steps are taken to rebuild the individual's credit. Although credit is not immediately available after the bankruptcy filing, it's not the end of the world. As long as someone can stay employed and make a decent living shortly after the bankruptcy, credit opportunities will start rolling in. The old phrase "time and good behavior heals all" perfectly fits the financial situation of someone's credit post bankruptcy filing.
Getting a low limit credit card or even a secured credit card from your bank will help your scores. Keeping the balance low and paying on time monthly is very important. The way that credit reporting works is the balance held on an account accounts for 30% of your score. The next portion is the available credit that you have and the last portion is the payment history. So if your credit ratio is too high your score will be lower. In simpler terms, when your charge cards are at their limits your credit score will drop drastically. That's why it's important to keep a low balance compared to your available credit. After filing bankruptcy there are many predatory lenders out there that see opportunity. Knowing that you can't file bankruptcy for eight years and you're virtually debt-free they prey on these individuals. Many of these lenders charge high interest rates and huge late fees. Getting caught up with one of these loans just to get credit can send a debtor back into the same situation they just got out of. After filing bankruptcy enjoy being debt-free and try living on cash, while rebuilding your credit slowly.
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