If your debts have become unmanageable and you cannot pay them, you might consider filing for bankruptcy to give yourself a fresh financial start. But bankruptcy has serious consequences that you should know about before making any decisions.
For example, bankruptcy will remain on your credit report for seven or 10 years, depending on the type of bankruptcy. That can make it difficult to obtain a credit card, car loan, or mortgage in the future.
Here’s what happens when you file for bankruptcy, along with some alternatives that you might want to consider first.
Key Takeaways
- Bankruptcy is a legal process for getting relief from debts that you cannot repay.
- If you file for personal bankruptcy, you generally have two options: Chapter 7 or Chapter 13.
- A Chapter 7 bankruptcy will sell off many of your assets to pay your creditors.
- In a Chapter 13 bankruptcy, you keep the assets but must repay your debts over a specified period.
- Bankruptcy can do severe damage to your credit score and should be considered a last resort.
- As an alternative, you may be able to negotiate with your creditors and work out a payment plan or other solution.