The average American has thousands of dollars in debt from loans and credit card purchases. If not managed properly, people can easily accumulate debt, which could affect their financial health. As a result, they could fall into bankruptcy.
What is bankruptcy?
This is the legal status of any person or entity that is no longer able to repay the money owed to the creditors. Oftentimes, bankruptcy is imposed by a court, initiated by the debtor.
What happens after bankruptcy?
- Your debts will be managed properly, giving you a fresh start.
- Your credit score will be affected negatively, which could make your financial life a tad more difficult.
- You could feel ashamed or guilty for letting your debts get out of hand.
However, bankruptcy can also offer relief to some of the pressure, especially if you have accumulated too much debt for too long. Collecting companies won’t also be pestering you day in and day out. This is because the moment you file for bankruptcy, collectors must stop pressuring you into paying what you owe. Aside from that, your salaries cannot be withheld or your house foreclosed.
After filing for bankruptcy, you will most likely have little to no money. But you will still feel a bit of relief because your finances will finally be under control. This means that all your debts will be consolidated to make repayments easier.
You must also be prepared for the long-term effect of bankruptcy. If you file for Chapter 13, which is reorganization, your record could appear in your credit report for up to seven years. As for Chapter 7, which is liquidation, it could be kept for up 10 years. All of this means that you won’t or will have a hard time to get any type of credit. But once you work hard to improve your rating, things will start to turn for the better.