The Negative Consequences of Filing A Chapter 7 Bankruptcy

When you have financial problems, you have several avenues to take, including filing for bankruptcy. The average consumer could file a Chapter 7 liquidation or Chapter 13 reorganization bankruptcy. If you do not have enough income to qualify for Chapter 13, you must file for Chapter 7. While liquidating does allow you to start over, it does have its consequences.

If you are considering filing for bankruptcy, contact an Encino bankruptcy attorney at SM Law Group for a free consultation to determine the best path for you.

You Could Lose Your House

While Chapter 7 does allow exemptions, so you are not starting from scratch, the exemptions are low enough that you could lose your home if it has too much equity. Chapter 7 is an excellent way to get a new start if you rent or have very little equity in your home.

If you do not have much equity in your home, you will keep your home in most cases. The bankruptcy court only looks at the equity, meaning the money you can cash out over and above what you owe that you can use to pay bills.

Loan Qualifications

While creditors are more likely to extend credit to you after a bankruptcy, you are still a high-risk debtor. Thus, you will have a hard time qualifying for larger loans. You might have to provide more documentation than you otherwise would. A mortgage lender will ask for a higher down payment on a house. You can start with smaller personal loans and one or two small credit cards to rebuild your credit.

Higher Interest Rates and Security Deposits

One of the biggest downfalls of filing Chapter 7 bankruptcy is that you will have higher interest rates and security deposits because you are a “high-risk borrower.” A bankruptcy can stay on your credit report for ten years. However, as the years go by and you show that you have a better handle on your credit and your credit score goes up, creditors will be more willing to extend credit at lower interest rates.

Landlords will also ask for more reasonable security deposits as time passes as long as your credit shows that you pay everything on time. Even with a bankruptcy on your credit report, you will start seeing lower interest rates and security deposits as long as the rest of your credit is good.

Building Up Your Credit

It will take some time to build up your credit. If you obtain a new credit card, be sure to pay more than the minimum every month. Make sure your payments are on time. As your credit gets better, you can get better credit cards. Always take care not to overextend yourself with your new credit.

Contact an Encino, CA Bankruptcy Lawyer

Contact an Encino, CA bankruptcy attorney at SM Law Group for a free consultation to discuss your issues and needs if you have financial trouble.