Bankruptcy Doesn't Ruin Your Credit
Many borrowers are forced into bankruptcy and, unfortunately, have that bankruptcy kept in their credit file for ten years. However, filing for bankruptcy makes sense if you are either unable to pay back most of your debts within five years or if you do not own a fair amount of assets that you could use to pay back your creditors. Choosing to file bankruptcy does not necessarily have to be a scary decision neither does it have to ruin your credit.
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Chapter 13 vs. Chapter 7
Chapter 13 bankruptcy requires debtors to repay their debts within a period of five years. If you do own assets but want to keep them, you might want to consider choosing Chapter 13. However, many people struggle with the repayment plans that go along with a Chapter 13 bankruptcy and about half fail to successfully complete those plans. Chapter 7 bankruptcy may be a better choice if you want to restore your credit as quickly as possible. Chapter 7 is the liquidation bankruptcy, meaning most of your unsecured debts such as credit card bills are wiped out. A lot of people worry that filing for Chapter 7 will ruin their credit and take away all their valuable assets. Filing for Chapter 7 may mean having to give up some of your assets: however, all fifty states exempt most property, which will protect many of your assets from creditors. Because of the exemptions, you may come out of Chapter 7 with most of your assets still available. The chance to rebuild your credit will be available as well. After you are released from Chapter 7 bankruptcy, you are free of debt. You could begin saving the money that you would otherwise be using for debt repayment in a Chapter 13. Having cash in savings and little debt will provide you with an improved credit profile. Chapter 7 will help you achieve financial strength much sooner.
But Beware
Although bankruptcy should not be the first and easiest choice, if it is your decision you should be careful when using a credit-counseling agency. Most counseling employees want to help you, but they are encouraged to steer you towards a debt repayment plan rather than Chapter 7. Make sure you consider all your options carefully.