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Nowadays, credit scores are very important for everyone. This is because the rising volatility of the economy today is likely to cause financial uncertainties down the grass root level. Therefore, you are a bit more protected from any financial implication if you get a high credit score.
However, maintaining a high credit score isn’t an easy task to do. There’s a point in which you may even find it hard to pay for your credit cards. As a result, you will need to apply for a credit card debt consolidation loan in order to keep your credit record clean. Otherwise, your last option is to file for bankruptcy.
What Will Happen If I file for Bankruptcy?
If you think you are no longer able to pay your debt, there’s no point in going through a collection period in which collection agencies will have to harass you in order to force you to pay your debt. Moreover, your interest will only continue to blow up.
To stop collection agencies from harassing you, you can resort to filing for bankruptcy. This will help you start over and recover from bankruptcy in general depending on the type of bankruptcy you are filing. There are two types of bankruptcy, which are chapter 13 bankruptcy and chapter 7 bankruptcy.
Chapter 13 Bankruptcy
When you aren’t capable to pay your debt based on your current loan structure, you can file for chapter 13 bankruptcy. This is for people who still have a regular income but is not enough to pay all their debt in a short period of time.
After filing for chapter 13 bankruptcy, your debt will be dispatched. This means you will be considered to restructure your payment according to your capability to pay. You will be given a much longer period to pay the debt without interest. In this period, collection agencies should stop contacting you.
Chapter 7 Bankruptcy
On the other hand, there is another type of bankruptcy you can choose to file if you don’t have a regular income, but you have some non-exempt assets. Instead of paying the remaining debt through your regular income, creditors may repossess your non-exempt assets to sell them. The proceeds will be given to the creditors.
If you still have a remaining balance after the proceeds are given to the creditors, the remaining balance will be forgiven. Non-exempt assets are anything except your personal assets you use for your daily life.
What Is the Effect of Bankruptcy to My Credit Score?
Definitely, bankruptcy will greatly affect your credit score, whether you file for chapter 13 bankruptcy or chapter 7 bankruptcy. You will notice a decrease from 160 points to 220 points. This can reverse a good credit score into poor one.
On the contrary, this is much better than not filing for bankruptcy at all because allowing your debt to be in the hands of collection agencies will further hurt your credit score, and paying these agencies will damage your score any ways.
With bankruptcy, time will help increase your credit score. When your bankruptcy expires, it will increase your score again. Later on, the bankruptcy will disappear from your credit record, and this will further lift your credit score.
We try our best to keep our credit scores high; however, there are times when we all face challenges, whether it’s from a medical emergency to loss of employment. Whatever your circumstances you have to remember that bankruptcy isn’t the end of the world, and your credit score will eventually recover.