Filing for bankruptcy can lead to a reduction in your credit score as well as a hit to your creditworthiness. Of course, filing for Chapter 7 protection in a California court may also eliminate most or all of your debts. For many people, life after bankruptcy generally involves a mixture of positive and negative consequences that may be relatively easy to anticipate before filing.
A Chapter 7 case stays on your credit report for a decade
The fact that you went through the liquidation bankruptcy process will be noted on your credit report for 10 years after your case is discharged. However, it’s possible that lenders will want to work with you right away if you are employed because your debt-to-income ratio will likely fall dramatically. As a general rule, you should be able to regain access to the most secured and unsecured credit products within a year or two after your case is resolved.
Eliminating debt may allow you to build a stronger future
Although it may be harder to borrow money, eliminating debt means that life after bankruptcy may be easier than you think. This is because you can pay for things that you need with cash as opposed to using a plastic card. Getting rid of credit card, medical or personal loan debt may also mean that you can put more of your paycheck into your emergency fund. Having that fund will further reduce your reliance on lenders because you’ll have cash available to pay for emergency car or home repairs.
Filing for bankruptcy may be ideal if you don’t think that you can pay down your debts in a timely manner. In some cases, doing so may enable you to increase your credit score and retain assets that were obtained before you filed.