Credit Repair Vs. Bankruptcy


While just the word "bankruptcy" may make you nervous, it may be just what you need if you're unable to meet your payments each month. If you don't see any hope in sight, filing for bankruptcy may give you the breathing room you need. Filing for bankruptcy can stop creditors from filing or continuing lawsuits against you. After you file for bankruptcy, it's unlawful for creditors or collectors to initiate or continue lawsuits, garnish your wage or even make telephone calls demanding payments on the items you listed when filing.

It's also possible, however, that bankruptcy may not be your answer. You know your financial health better than anyone. If, when you consider bankruptcy, you see that you won't be able to survive without using credit to supplement your income, you need to consider other options. After you file for bankruptcy, it will become significantly harder to obtain credit, especially unsecured loans. You should make sure that your employment and living accommodations are stable before filing for bankruptcy because new employers and landlords sometimes run credit checks.

You need to consider any co-signers or co-applicants who have signed onto a loan or credit card with you. If you file for a Chapter 7 bankruptcy, they will still be obligated to pay the debt to any lenders who try to collect.

If you have very little in the way of assets, and none of your debts contain cosigners, it's doubtful your creditors will sue you for collection as they most likely won't be able to collect anything from you. If this is the case for you, filing for bankruptcy may not be necessary.

A Challenged Bankruptcy

If you decide to file for bankruptcy, you should be aware of certain behaviors that may result in your bankruptcy being challenged. Largely, these behaviors are suspect because they can be indicators that a filer is trying to take advantage of their situation. Be careful not to run up charges on your credit cards, taking out cash advances, or change your spending patterns before filing for bankruptcy as this can look suspicious. Also, if after consulting with an attorney he/she advises you to file for bankruptcy, you should not go out and make credit card charges. Transferring cash or property to friends or relatives will also be looked on with suspicion. Whatever your situation, you should never hide assets, income, or other property from the courts. It's also unwise to overstate your income or understate your debt when applying for credit.

Chapter 7 Vs. Chapter 13

President Bush signed a bankruptcy law on April 20th, 2005 that went into effect on October 17, 2005. It is now much harder to wipe out medical bills, credit card debt, car loans, and other debt. This new law encourages more Chapter 13 filings, which result in repayment schedules. The new law also requires credit counseling courses and increased court costs.

In a Chapter 7 bankruptcy, you may be forced to surrender property that isn't exempt. Be sure to look at all the types of bankruptcies so that you choose the best one for your situation.

There is no denying a bankruptcy can devastate your credit rating. When you file a bankruptcy, every credit account that you decide to include will become an "included in bankruptcy" account. Additionally, a bankruptcy filing and discharge listing will appear in the court records section of your credit report. Because so many questionable items are attached to the bankruptcy, it becomes extremely difficult to remove all traces. Remember, a bankruptcy usually stays on your credit report for up to ten years.