Bankruptcy is not a pleasant thing to have to go through, but the simple fact is that for some people it is the only option and can offer a financial fresh start for those who have gotten in over their head in financial terms. But everyone who is considering this move should be fully aware of the consequences. One of the biggest consequences is how bankruptcy affects credit.
If you file chapter 7 successfully, or even chapter 13, this will be on your credit file for ten years. During this time, you will find it almost impossible to obtain credit. This is a problem if you are going to require a car loan, even a new mortgage or a credit card of any sort. However, it is also worth bearing in mind when considering how bankruptcy affects credit that some companies do loan to those who have been declared bankrupt, on the logic that these people have fewer other financial commitments and are probably the people who have learnt lessons from mismanaging finances in the past. But no matter who is prepared to loan you money, you will invariably pay an inflated rate of interest because you will be considered a high risk borrower.
However, while the first two years after a bankruptcy will be particularly difficult purely because of how bankruptcy affects credit, you could also see this as a silver lining and a golden opportunity. You can now, with regular repayments on time for any credit amount, however small, rebuild your reputation with a fresh start completely. So while the effect of bankruptcy on your credit rating is most definitely negative from any angle, you can also look at bankruptcy as an opportunity to turn your credit rating around with regular repayments, sensibly managed over an extended period of time.
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Find out more about declaring yourself bankrupt and what are the considerations you should take note of.
Author: Jeremy Edwards