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3 Things You Need To Know Before You File For Bankruptcy

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Times are tough these days and more people are finding themselves in financial trouble. One way to get some relief from your financial dire straits is to file for bankruptcy. However, bankruptcy is not a decision to be made lightly. Here are three things you need to know before you file for bankruptcy:

1. Not all debts can be discharged in bankruptcy.

A common misconception is that you can discharge all of your debts when you file for bankruptcy. The truth is there are several types of debt that can't be erased. If you file Chapter 7 bankruptcy, which is the most common choice for non-business individuals, some of the debts you can't discharge include:

  • Tax debt
  • Alimony
  • Child support 
  • Federal student loans
  • Debts incurred through fraud
  • Financial penalties (i.e. court fines)
  • Judgments relating to personal injury and wrongful death cases

Even with all of the debts that can't be discharged in bankruptcy, you can still eliminate a lot of your debt if you decide to go that route.

2. Bankruptcy will impact your credit score for a long time.

A fact that you can't get away from after you file for bankruptcy is that it will affect your credit score. However, if you didn't have good credit because of all the debt you had before filing for bankruptcy, your credit score likely won't go down as much as it would for the person who had good credit.

That being said, the bankruptcy will stay on your credit report for a maximum of 10 years and can impact your ability to get a car or home loan during that time.

3. It can be wise to get a credit card after you file for bankruptcy.

Part of filing for bankruptcy is you will go through financial counseling. If you take what you learn there and apply it to your life, you can make positive changes to the way you handle your finances. Once you feel you are in that mindset, it can actually be a wise move to get a credit card to help rebuild your credit.

You don't want to go with a prepaid card because it won't be reported to the credit bureaus. Instead go with a secured credit card, which usually asks for you to make a cash deposit before they will extend you a line of credit.

You just need to be sure to use the credit card responsibly - don't charge things you can't pay for when the bill comes due, but also don't let it sit unused. The purpose of the card is to help you rebuild your financial reputation, and you can't do that if you don't use it or fail to pay the bill on time. To learn more, contact a company like FactorLaw with any questions you have.