Wednesday, January 26, 2011

The Short and Long Term Effects of Bankruptcy

Since my law firm began offering Chapter 7 and 13 bankruptcy filing services to residents of Northern California a few months ago, I have been more focused on bankruptcy on my blog. There is a lot of misinformation about bankruptcy out there, so I wanted to explain some of ther short and long term effects of filing for bankruptcy.

Short Term:

Discharge or Restructuring of Debt

Filing for bankruptcy can be a difficult and stressful process, but once it’s done, you can have a fresh financial start. Depending on what type of bankruptcy you filed (Chapter 7 or 13) you will either have your debts discharged or restructured, both giving you the opportunity to get your finances back on track.


Filing for bankruptcy will eliminate or restructure your debts, but there are some expenses involved. If you hire an attorney, you should expect to pay a fee to retain their services, and you may also need to pay a trustee fee. It seems odd, having to spend money to declare bankruptcy, but these expenses are simply unavoidable, and can help ensure your case is filed properly.

Difficulty Obtaining Credit

Because bankruptcy shows up on your credit report, you will likely find it harder to get credit. And when you are approved, you will find you must pay higher interest rates than before you filed. This can make it difficult to buy a car, a home or even get a simple credit card for a while, but you must be patient. Your credit will improve over time as you work toward a better financial future.

No More Hassling Calls

One of the best short-term effects of filing bankruptcy is that you will no longer have to deal with harassing calls from creditors. As soon as you hire an attorney to handle your case, creditors are legally required to stop contacting you. This can reduce your stress level immensely; some even say this effect alone makes filing for bankruptcy worth it.

Long Term:

Credit Report

Depending on what type of bankruptcy you file for, it will show up on your credit report for either 7 or 10 years. Lenders, employers and new landlords will often check your credit report to get information about you. You may be able to lessen the impact by filing a letter with credit agencies explaining the extenuating circumstances that lead to your decision to file for bankruptcy.

Job Applications

Some employers will ask if you have ever filed for bankruptcy when you are applying for a new job. Even though it may not show up on your credit score any longer, for some positions you will still be required to let your employer know that you filed for bankruptcy in your lifetime. However, since bankruptcy filing is becoming more common, a reasonable explanation for why you needed to file can help an employer see past the bankruptcy.

Life Insurance

For some reason many life insurance applications will ask if you have ever filed for bankruptcy in your life. Even if ten years have passed, you will still be obligated to answer "yes." This can affect your policy and rates, and being dishonest is technically committing fraud. Again, this is where a tough economy can work in your favor, as more people file for bankruptcy, the stigma will lessen as will the negative impact.

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