All bankruptcy experts will tell you that the only magical solution to all your debt nightmares is to file for Chapter 7 or Chapter 13 bankruptcy.

In fact, the way they portray bankruptcy would make even a professor think a lawyer would just walk in through your door with a wand and magic all your all your financial mess away.

One thing that these professionals never tell you is that filing for bankruptcy can affect your credit score negatively.

Credit has become a staple in our lives that having poor credit can be a big inconvenience.

Before you file for bankruptcy, here are important elements you need to understand.

1. The word ‘bankruptcy’ will appear on credit report for a long time

While a chapter 7 bankruptcy takes four to six years to complete and exempt you from many debts, never assume that all your financial issues will be magically solved.

The bankruptcy filing will become a stubborn stain on your credit report for at least seven years and a maximum of ten years. This implies that you will have difficulties in obtaining credit for many years.

2. It will become a public domain

It’s worth mentioning that bankruptcy is a legal process. That means once you file for bankruptcy, it will become a public record.

Your name and any other personal details will definitely appear in court records that can be accessed by the public. Potential employers, businesses, banks, clients, and more may access these records.

3. Bankruptcy doesn’t wipe out all your debts

While most people believe bankruptcy erases all financial mess, that isn’t the case. If you’re facing serious debt issues, bankruptcy may be a very powerful remedy.

According to, here is what this procedure can do;

Clear credit card debts and any other unsecured debt: Unless you also have ‘secured’ debts, your credit card balance is simply an unsecured debt.

That means the creditor lacks lien on your property and can’t repossess the items purchased on credit in case you don’t pay the debt.

However, if you file for chapter 13 rather chapter 7 bankruptcy, you may be required to repay a specific portion of all your unsecured debts. The unsecured debts that will remain after competing for your repayment plan will be discharged. 

Stop collection activities and harassments: filing for bankruptcy can stop different forms of creditor harassment.

However, if this harassment is in the form of letters and phone calls, there are easier ways to stop it. If the harassment is very serious, for instance, the credit threatens to foreclosure your mortgage or repossess your car, then, bankruptcy can help.

Eliminate some liens: A lien is simply a creditor’s right to possess part or all your property. In this case, the creditor will survive bankruptcy unless you invoke some procedures during your bankruptcy case.

Here is what bankruptcy can’t do;

Stop a secured creditor from repossessing property: Always remember that bankruptcy discharge can eliminate debts but can’t eliminate liens.

Therefore, in case you have a secured debt, bankruptcy will eliminate your debt but won’t prevent your creditor from repossessing the item.

Eliminate alimony and child support obligations: alimony and child support obligations always survive bankruptcy, and that means you still owe these debts in full the way you would have if you never filed for bankruptcy.

Eliminate student loans, except in very limited instances: a student loan can only be discharged in bankruptcy if you can reveal how the loan repayment process will cause you ‘undue hardship’.

In fact, you must prove that it’s not only difficult for to repay the loan now but also very minimal chances being in a position to clear the loan in the future. 

4. If you don’t have enough money, filing for bankruptcy can be challenging

You can opt to file for bankruptcy because you’re in financial distress and can’t repay all your debts and mounting bills.

The primary downside of this procedure is that a chapter 7 or chapter 13 bankruptcy declaration needs a high level of legal representation. Unfortunately, the services of a qualified bankruptcy lawyer are very expensive.

These charges vary depending on location. However, filing chapter 13 bankruptcy can take three to five years to settle.

On the other hand, the attorney fee can range from $2,200 to $3,200. A chapter 7 bankruptcy is less expensive because the lawyers pay a small role. However, you will have to part with anything between $800 and $2,500 depending on your location.

5. It’s difficult to come across a decent home loan

You already know that in today’s lending environment, financial institutions are skittish about advancing loans to anyone for a home. It’s hardly a surprise that people who opt to file for bankruptcy face extremely tough challenges in getting a decent mortgage loan.

The Home Buying Institute asserts that it can take someone who recently filled a bankruptcy one to four years before they can get a chance to get approved for a loan.

The Federal Housing Authority requires bankrupt applicants to wait for at least 24 months after the bankruptcy declaration before they can get a Federal Housing Authority home loan.

Even if you are lucky enough to get a home loan following a recent bankruptcy filing, you may want to change your mind after seeing the interest rates on offer.

In case your credit score is 500 or below, and you recently filed bankruptcy, can expect to face an interest rate of approximately 6.25% to 6.50% above the real interest rates.

That means a borrower with a high credit score can nab a mortgage loan at 4.00%, but your interest rate will be 10.50% for the same loan just because you filed bankruptcy recently.

6. Under chapter 13 bankruptcy, missed payments can be challenging

In case you fail to meet your financial obligations in chapter 13 bankruptcy, things may go sideways. The case may be dismissed, or the trustee can convert the bankruptcy case to chapter 7 liquidation. Either of these options is bad news.

The worst case is where your case is converted to chapter 7 bankruptcy liquidation. Trust me, all your non-exempt property including bank accounts, vacation homes, second cars, family heirlooms, and more will be sold, and the proceeds will be distributed to all your debtors.

Additional bad news: if your bankruptcy case is dismissed, you will definitely go back to square one, liable for all your financial mess!


A chapter 7 or chapter 13 bankruptcy shouldn’t be taken lightly. You should be well informed of all the benefits and risks. Don’t wait for it to take you by surprise.

About the Author:

Catherine is a connector with Caffeinated who help businesses find their audience online. She loves working in the ever-changing world of digital and is fascinated by the role content plays in today’s marketing. Find her on Twitter