Your credit report is like a snapshot which can show lenders and potential employers what your current financial situation looks like and how responsible you have been in handling financial obligations. Any negative report on your account can be detrimental to your financial health, but a long-term inability to meet your financial obligations could result in liens or bankruptcy. Determining which is worse between a lien and bankruptcy is subjective.
Lien Definition
A lien is a legal claim against property you own, and liens are typically assessed when you owe money because of an unsettled debt or credit account, in addition to unpaid bills such as taxes, water bills, or home renovations. Just about anyone can place a lien against you if you owe him money. You may be sued if you fail to pay, and if the court deems you responsible for the financial claim against you, a lien may be placed against your home, automobile or other real property. You may be prevented from selling the property without satisfying the lien, or your property may be sold at a sheriff's auction in order to satisfy the debt.
Bankruptcy Definition
Bankruptcy is a legal process by which you legally declare that you are unable to meet your financial obligations as they currently exist. Bankruptcy involves an in-depth examination of your current debts and income to determine whether you are financially insolvent. Depending on the type of bankruptcy you file for in bankruptcy court, you may be able to completely wipe out all of your financial accounts to a zero balance.
Effects of Liens
According to pelleylaw.com, a lien can have disastrous effects. If the lien is not satisfied, the size of the debt can continue to grow because of additional interest charges, penalties and other fees. In some cases, filing for bankruptcy may be the only way to get rid of a lien when you are unable to pay it off. Additionally, if you are applying for credit, a lien on your credit report can negatively impact your ability to get approval. Some lenders may consider a lien as a debt that reduces your disposable income and ability to repay a loan or credit account.
Effects of Bankruptcy
Bankruptcy can be devastating to those who have no other choice, but filing for bankruptcy can also allow you the opportunity to have a fresh start. Once your accounts have been resolved through bankruptcy court, you can begin rebuilding your credit almost immediately. Nationwidecreditrestoration.com indicates that some lenders may even see you as a more viable applicant for credit when you have no more debt and greater disposable income.
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