Bankruptcy

While some people are under the impression that bankruptcy is a quick and easy way to absolve their debts, that's far from the truth. Recent changes to laws have made it tougher than ever to declare bankruptcy, with mandatory credit counseling prior to consideration, and less exemptions than previously.

While it has it's place for those who truly have no other options, remember that debt consolidation remains the preferred option when possible, followed by debt negotiation in terms of how it will impact your credit rating and future finances.

The Effects of Bankruptcy:

A large number of borrowers who are going through a hard time with debt look at bankruptcy as a quick way of getting out of various debt and getting a quick fresh beginning. While there can be times and circumstances where bankruptcy is actually the preferred (or only) option, it's not the type of decision you should make lightly once you consider the consequences.

How Bankruptcies Affect Your Credit Report

You may not be able to see why right now while you are drowning in various debt, but there may still be circumstances in which you'll require or want additional credit. Whether it is purchasing a car, leasing, buying a home, renting; all these situations involve your credit, and there's nothing that looks worse on your credit report than a bankruptcy will.

When a financer is deciding on whether they should provide credit to a person, they will usually look at the ability of the individual to make regular payments according to 3 things; recent income to debt ratio, how stable their finances are, and their history of payments. With a bankruptcy scar on your credit report, your financial stability and history are not going to look terrific to anybody.

Credit reports can store info on your bankruptcy for as much as ten years following discharge. While it is technically possible to attain credit after a Chapter 7 or Chapter 13, assuming your credit report is what your ability to attain credit is based off of, it would be severely hard if not impossible in many circumstances. If you do start to re-establish your credit again, you will end-up paying higher than normal interest rates on anything and everything from home loans to credit cards.

How Bankruptcy Will Affect Trying To Buy a Home

While it's not impossible to get a home loan after having filed for bankruptcy, it may be more difficult. Most private lenders will put the applicant under severe scrutiny unless the bankruptcy is years past and your credit has been great ever since. Even if those tests are passed, it is hard to get rates as competitive as a person with an equal credit score but a cleaner credit history.

FHA loans more often than not require the borrower has founded at a minimum 2 other credit accounts since the bankruptcy, that should be kept in exemplary standing. The person borrowing also needs to wait a time period of at the very least two years after filing and discharge for Chapter 7's or at least one year after Chapter 13's.

VA financing options for the most part require a 2 year period of solid credit after filing and discharge also, although extenuating circumstances might be taken into account.