Written by Spotloan

When we were young, no one ever really taught us about tricky financial situations like credit card debt, owing money to the IRS at tax time, or going through bankruptcy. Unfortunately, many of us have had to learn these lessons the hard way. Interest on loans and credit card bills can sneak up on the best of us. But the good news is that you’re not on your own anymore; there are resources available to help.

If you can catch it early enough, bankruptcy can often be avoided. It might seem impossible to dig your way out of a financial hole that was years in the making, but it can be done. The first step is reducing your debt.

But sometimes, the problem is too far gone by the time we catch it. If that’s the case, just remain calm and open-minded; you still have options, and like everything else, this problem is temporary.

Bankruptcy Can Stay on Your Credit Report for Up to 10 Years 

If you’ve found yourself facing down bankruptcy (either officially or potentially), you might be wondering about the implications of doing so. How long bankruptcy will stay on your credit report will depend on what type of bankruptcy classification you pursue. The two most common debt reduction or elimination bankruptcy classifications are Chapter 13 and Chapter 7. A Chapter 13 bankruptcy will stay on your credit report for up to seven years, while a Chapter 7 bankruptcy will stay for up to ten.

So, what’s the difference? The biggest distinctions are the length of time that the bankruptcy remains on your credit report and what happens to your possessions:

  • Chapter 13 bankruptcy is considered to be a re-organizational bankruptcy, meaning that your property will not be sold. You’ll be given the opportunity to adhere to a court-mandated repayment plan, and if you do so successfully, you may get to keep your property.
  • Chapter 7 bankruptcy is the harsher method and is also known as liquidation bankruptcy. The majority of your property will be sold in order to pay off your debts. This is typically for individuals that have a limited source of income (or no income at all) and won’t be able to pay back their debts otherwise.

Bankruptcy in any form will hurt your credit, but the impact will decline over time. If bankruptcy seems like the only path left to take, carefully consider your options first, and come up with an individualized plan for rebuilding your credit and securing a healthy financial future.

What to do Before Filing for Bankruptcy

There are typically some tell-tale signs that you’re heading toward bankruptcy. If you’re missing payments, receiving regular calls from debt collectors, you’ve run out of credit, and you’ve tried taking out a home equity loan that didn’t help, you may be on your way.

But bankruptcy is meant to be a last resort. It’s not only damaging to your credit, but it also comes with costs that can make the situation harder, especially if you plan to hire a bankruptcy attorney. Before you file, it’s important to consider what else you can do first:

  1. Sell some of your possessions and use the profits to make payments on your debts. We live in a time where you can sell just about anything online. Gather up the items that you can live without, like excess clothing, furniture, electronics, and jewelry, and then list them for sale online. You can also bring certain items to pawn shops, second-hand consignment shops, or tag sales. Each payment you can make will help you lessen that debt.
  2. Cut costs in other areas and reallocate the funds to your debts. If you have multiple streaming services, consider canceling cable. Thousands of individuals have been saving money by cutting the cord and moving to a connected television or streaming strategy. If you’re in the habit of going out to dinner or meeting your coworkers for happy hours, start eating at home. Skip the manicures, save on utilities by leaving lights off when you can and adjusting your thermostat, and save on gas by carpooling. Why not clip coupons or look for product discounts online before you head out to the grocery store? You may be surprised by how much even these seemingly small activities will add up to more and more savings. 
  3. Find additional income streams. You can bring in additional income to make payments on your debt by picking up hours at work or getting a part-time job on the weekends. If you have a creative hobby like calligraphy or making jewelry, you can market your skills and sell handmade products online. You can also drive for a ride-sharing service like Uber, deliver groceries, or sell other services on Fiverr. If you are a great writer, consider writing blogs for companies that are always looking for writers and great content.
  4. Ask your creditors if they have hardship programs you can take advantage of. If all else fails, talk to your creditors about the situation you’re in. Many lenders and banks understand that their customers may face financial difficulties, and they may be able to help you avoid bankruptcy. Let them know that you want to pay them, but you’re struggling. Ask them to help by lowering your monthly payments and/or decreasing your current interest rate, and see what they can do.

You can try any combination of the above strategies to see what works best for you and will help you avoid bankruptcy. If you’ve already tried these or you’re looking for more, consider ways to make money and save such as reaching out to your phone provider to lower your rates, or shopping around for better rates on your savings account. Sometimes even the simplest of methods can really help to add up to more money in your pocket.

Our company specializes in helping borrowers like you who need emergency financial assistance, and you can contact us here if you need information, guidance, or assistance.