Bankruptcy and credit  
Unlimited access with Credit Manager

Credit Manager gives you unlimited access to your Experian credit report and credit score, e-mail notification of report changes, plus interactive tools to help you make good credit decisions.

More »


Get your credit report & score

If you don't need unlimited access your your credit information, purchase a one-time, online copy of your Experian Credit Report and Credit Score for just $14.95. Make sure your information is accurate and fix any errors before applying for your next loan.

More »



Bankruptcy



Before the concept of bankruptcy, people who could not meet their debt obligations would often face criminal prosecution and jail time. Bankruptcy was conceived to help people recover from debilitating debt without having to face criminal charges. Each year more than one million Americans file for protection under Federal Bankruptcy Laws.

Generally, they're average working individuals or families who have become overwhelmed trying to pay all of their bills. Falling into debt trouble can happen suddenly. The sudden loss of a job or income, mounting medical bills, a divorce or even a natural disaster can quickly wipe out a life's savings. For people who have suffered such misfortune, bankruptcy provides a second financial chance.

However, a growing number of Americans file for bankruptcy not from bad luck, but rather because they have lost control of their spending habits or have willfully abused their credit. Regardless of why a consumer files for bankruptcy, it is a serious step with wide ranging implications that should never be taken lightly.

Bankruptcy is a devastating mark on your credit report that can eliminate credit opportunities for up to ten years, making it difficult to rent a home and nearly impossible to find a reasonably priced mortgage. It should only be considered as a last resort. Lenders will often work out payment plans for people who continue to show good faith in attempting to pay their debts even though they may be financially embattled. If you are still drowning in debt after exhausting all possibilities of relief, here is what you need to know about the two common types of personal bankruptcy.

Chapter 7 bankruptcy

Also known as "straight bankruptcy," Chapter 7 bankruptcy allows a consumer to keep certain exempt property such as work equipment, and some money, clothing, and home equity. The specific items that are exempt will depend on where you live. The rest of your possessions and assets will be sold under the supervision of a federal court trustee. The money raised from the sale will be parceled out to various creditors. Once bankruptcy is declared, most creditors cannot seek further payment. However, this does not mean the person can skip out on all financial burdens. Court ordered alimony and child support, most taxes and, --under most conditions,-- student loans will remain after a Chapter 7 bankruptcy.

Chapter 13 bankruptcy

Also known as the "wage-earner's bankruptcy," Chapter 13 bankruptcy allows the debtor to keep his property and negotiate a three-to-five-year repayment program, which must be approved by the court trustee.

This article is provided for general guidance and information. It is not intended as, nor should it be construed to be, legal, financial or other professional advice. Please consult with your attorney or financial advisor to discuss any legal or financial issues involved with credit decisions.