If not properly managed, credit card debt can become overwhelming. It is easy to amass credit card debt through travel and vacation expenses, everyday purchases and emergency expenses. If you cannot foresee paying down your credit card debt, bankruptcy may be an effective option for relieving you of your debt and ending creditor collection efforts. However, filing bankruptcy for credit card debt can have negative financial consequences.
Credit Damage
Filing for bankruptcy protection to discharge your credit card debt can have a dramatic impact on your credit score. The specific effect on your credit depends on the amount of damage late payments and charge-offs have already done to your credit score. If you have never missed a payment, bankruptcy will have a more significant impact than if you have already fallen behind on your credit card payments. If you have a clean credit history, bankruptcy may lower your score by 100 points or more.
Inability to Obtain Future Credit
The impact of bankruptcy on your credit score will affect your ability to obtain credit cards in the future. A bankruptcy filing stays on your credit history for 10 years after the discharge date. You may not be able to obtain a credit card to rebuild your credit, particularly during the first year after bankruptcy. A bankruptcy filing can also make it difficult to obtain other types of credit, such as mortgage loans and car loans.
Other Negative Effects
If you apply to rent an apartment or home, the rental agency or landlord will likely obtain a copy of your credit report as part of the evaluation process. If you have a bankruptcy on your record, the landlord or rental agency may deny your application. Also, although federal law prohibits an employer from denying you employment solely because of a bankruptcy, a bankruptcy filing may cause a potential employer to look for other reasons not to hire you.
Alternatives to Bankruptcy
Several strategies can help you avoid filing bankruptcy for credit card debt. Call each of your credit card companies to inquire about a repayment plan, which may involve a temporary reduction in interest or spreading out your past-due balance over several months. Your credit card company may also accept a partial settlement. Although a partial settlement can impact your credit score, the effect is typically less severe than a bankruptcy filing. You can also work with a credit counseling service, which can negotiate lower payments and reduced interest on your behalf, allowing you to repay your credit card debt without straining your budget.
0 comments:
Post a Comment