Personal bankruptcy refers to the debt management instrument that is generally regarded as a last resort due to its long-lasting and far-reaching consequences. In fact, a bankruptcy declaration can remain on a credit report for up to ten years. Given that you already have a negative note on your credit report, it is inevitable that you will face a multitude of consequences.
There are, however, additional aspects of personal bankruptcy that are equally important and have significant effects on your finances and credit standing. These are the two types of personal bankruptcy that affect credit reports most frequently.
Reorganization
There are certain properties that you tend to keep even after declaring bankruptcy, due to their value and other factors. This includes your mortgages on your home and vehicle; otherwise, you risk losing these valuable investments. Reorganization allows you to repay your mortgage within three to five years, or default. This is the alternative course of action you could take when you are insolvent, instead of surrendering your properties. This is known legally as chapter 13 bankruptcy.
Straight Bankruptcy
This type refers to the liquidation of all non-exempt assets, which may include fundamental household furnishings or work-related equipment. In this case, some of your properties will be sorted and sold by a court-appointed official, or they may be given to your creditors. This is known as chapter 7 bankruptcy, and it can only be filed once every six years.
The Imminent Consequences
When a bankruptcy filing remains on a person's credit report for an extended period of time, he or she is destined to encounter a multitude of financial difficulties. It would be exceedingly difficult to obtain and be approved for additional credit. The majority of creditors and lenders require a credit report as eligibility criteria, so if you have recently filed for bankruptcy, your chances of being authorized for credit or a loan are minimal.
Additionally, bankruptcy influences your ability and credibility to purchase a home in the future. Due to the complex requirements and criteria, it is extremely challenging to apply for a mortgage. If you have a history of financial ruin, mortgage lenders will view you as more of a liability than an asset, and this will be evident in your credit report. Obtaining a life insurance policy, securing a job, and overcoming the residual stigma is also difficult.
Being bankrupt is an extremely difficult circumstance to endure, particularly if you wish to regain financial stability. You are given a fresh start to make amends and rehabilitate your credit history, which is a positive.""
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