Bankruptcy is a last resort debt relief option, but many people – especially young people who are dealing with credit for the first time – think it’s a way of wiping out all your debt without consequences. Nothing could be further from the truth. Bankruptcy hurts your credit for the next seven to ten years and can make it difficult to buy a house, rent an apartment or even get a job. If you have credit card debt problems, investigate debt settlement before filing for bankruptcy.
Consumer debtors may file for one of two types of bankruptcy: Chapter 7 or Chapter 13. Both types of bankruptcy harm your credit and may have other adverse consequences. Chapter 7 requires you to liquidate the majority of your assets to repay your debts. If you don’t qualify for a homestead or vehicle exemption or don’t file these exemptions properly, you could lose your home or car when you file for this type of bankruptcy.
In addition, you can’t file for Chapter 7 unless you earn less than the median income for your state or have unusual expenses that sharply cut into your income after taxes. Chapter 7 bankruptcy stays on your credit for 10 years.
If you don’t qualify for Chapter 7 bankruptcy, you may file for Chapter 13 bankruptcy. Chapter 13 bankruptcy requires you to enter a structured repayment plan, in which you repay the debt over the course of three to five years. Even though you’re paying a large portion of your debt back, Chapter 13 seriously harms your credit for seven years. You could make arrangements via a debt settlement company to repay your debts without filing Chapter 13 or harming your credit.
Bankruptcy takes an emotional toll as well as a financial one on consumers. Having financial problems often leads to feeling guilty or like a failure, and filing for bankruptcy is the ultimate manifestation of financial failure. This can be especially devestating for college students or other young people who are dealing with debt for the first time. To go out into the world for the first time and have to admit total failure may make a young person feel like he is too immature to succeed at life or that he will never learn better financial habits.
In addition, the credit consequences of bankruptcy are particularly difficult for young people because they have their whole lives ahead of them and are not yet sure what their future holds. Beginning adult life with a tainted credit record can make young people feel hopeless as well as make it harder for them to be successful in their future endeavors. A young person who hasn’t yet held an apartment or a job shouldn’t put himself at a disadvantage by ruining his credit via bankruptcy.