Submitted by Rachel R on Fri, 05/10/2013 - 8:34pm
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So, you’re drowning in debt and unable to pay your bills. You’ve finally decided to take action and file for bankruptcy, but there’s just one nagging question you have…will filing for Chapter 7 bankruptcy ruin your credit? Here’s what you need to know.
You’re not alone in wondering how your credit will be affected by filing a Chapter 7 bankruptcy. In fact, that’s one of the most commonly asked questions by people who contact a bankruptcy lawyer. The important thing to remember is this: If you are considering filing for bankruptcy, chances are that you are already struggling with a less than perfect credit score. In a perfect world, you’d just pay off all your debts and then start paying each bill as soon as it’s due. Unfortunately we don’t live in a perfect world and things like unemployment, medical bills, divorce, student loans or outrageous mortgages often lead to massive debt.
When you file a Chapter 7 bankruptcy in North Carolina, it remains active on your credit report for a term of ten years. Don’t let this scare you away! The majority of people who are considering a Chapter 7 bankruptcy are under the misconception that they will not be able to obtain credit for at least a decade. The truth about bankruptcy is that filing for protection does not ruin your credit.
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There are several factors that affect your ability to obtain credit after filing a Chapter 7 bankruptcy. If you have a stable, full-time job with an average median income, it’s highly likely that you will be able to obtain new credit cards or automobile loans almost immediately after you receive a bankruptcy discharge. In fact, there are some lenders who advertise that they underwrite a car loans for people before their Chapter 7 bankruptcy discharge has been granted, so long as the Meeting of Creditors has taken place.
When it comes to purchasing a home after filing a Chapter 7 bankruptcy, there are some people who successfully obtain mortgage loans within two years. While most of these mortgage loans do come with higher interest rates attached, keep in mind that interest rates are still fairly low right now. For example, interest rates on a high-risk car loan may run you 10 to 12 percent, while high-risk home loans may be around 8 to 9 percent.
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The best news for you is that once you file Chapter 7 bankruptcy in North Carolina, you can begin to rebuild your credit. After you receive your bankruptcy discharge, your debt to income ratio changes dramatically. You are actually at an advantage here because someone who is on the verge of bankruptcy is at a higher credit risk than someone who has already completed the process. It truly makes sense when you think about it. After your Chapter 7 bankruptcy is complete, you are on the way to financial freedom, as your unsecured debts are zero. You automatically have disposable income, so creditors know that you can afford to pay your bills in a timely manner.
The bottom line is that filing a Chapter 7 bankruptcy does not ruin your name, nor does it ruin your credit. It’s all about how you handle your finances and credit in the years that follow your bankruptcy discharge. As long as you have a steady rate of pay that is around the average median household income, successfully manage your finances, use your current credit wisely and follow a budget, you should be able to obtain new lines of credit after filing Chapter 7 bankruptcy.
If you’re ready to take the first step toward a fresh financial start, contact a local North Carolina bankruptcy attorney today. Find out how filing Chapter 7 or Chapter 13 bankruptcy can help you get back on your feet.
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