An estimated 1.5 million Americans declare bankruptcy each year. Unfortunately, many of those individuals fail to weigh the consequences of bankruptcy before their filings. It is not an easy way out of financial troubles, and there are many complications associated with it that can be confusing to those declaring it.
There are two types of personal bankruptcies that an individual may declare: Chapter 7 and Chapter 13. Regardless of which chapter an individual files under, his or her credit will usually suffer for 7-10 years, meaning that the individual will have limited financial options for that time period.
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Limitations Faced by Filers
Typically a bankrupted individual will not be able to:
Take out a personal loan for debt relief or other uses Finance a large purchase, such as an automobile or home Use credit for any other reason he or she needs
Even if an individual's financial situation improves during the 7-10 year period, creditors may remain wary of lending that individual any money, as they see a bankruptcy declaration as a sign that an individual has historically been unable to repay his or her debts.
If a lending institution does decide to lend money to a bankrupted individual, it will usually be at a very high interest rate. Typically, the worse an individual's credit is, the higher the interest rate that he or she will have to pay on borrowed money. Fortunately, there are steps that filers can take during this period to improve their credit scores. In addition, they may benefit in the long term. Having a negative mark on one's credit score does not place one in a hopeless situation.
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