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What are the long-term effects of bankruptcy?

| Apr 22, 2021 | Uncategorized

Some people in Virginia who are dealing with overwhelming debt hesitate to file for bankruptcy because they believe that doing so will have long-term negative consequences. However, bankruptcy might improve the financial situations that people are in and provide them with a fresh start. Here is a brief look at some of the consequences people might face after filing for bankruptcy and the steps they can take to minimize their impact.

Consequences of filing for bankruptcy

People who file for bankruptcy will face an immediate drop in their credit scores. However, many people who are facing bankruptcy already have poor credit, meaning that it will not have a large impact on them. Since Chapter 7 bankruptcy allows people to discharge most types of unsecured debt, people who have received discharges through Chapter 7 bankruptcy might receive offers of credit shortly after their bankruptcy cases have concluded. Chapter 7 bankruptcy can remain on credit reports for up to 10 years, making it more difficult for people to be approved for loans or mortgages. Some people might also lose some property during the bankruptcy process. However, many types of property are exempt and will not be sold by the bankruptcy trustee.

Steps to minimize the long-term consequences of bankruptcy

People can take a few steps to lessen the impact of bankruptcy. After they have received discharges, they should work to build good credit. Getting a secured credit card and paying the balance in full each month can help people’s credit scores to rebound. They can then apply for a vehicle loan and make all payments on time. After a couple of years of building their credit and establishing a good payment record, it is possible for people to be approved for mortgages.

In many cases, bankruptcy is the best option for people who are unable to pay their debts. However, there might be other options available. Talking to an experienced bankruptcy attorney might help people to analyze their options and determine whether bankruptcy is the right choice for their situations.