Going Bankrupt
A lot of people who are sinking in debt look at bankruptcy as a simple way of getting out of various debts and getting a simple "fresh beginning". And while there might be situations in which bankruptcy is truly the preferred approach to deal with it, it is not the type of choice you ought to decide quickly.
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How It Will Affect Your Credit Report
Although you might have sworn off those department store and additional high-interest credit cards for the rest of your life, chances are good there may still be conditions in which you will require or want credit. Whether it is buying a new home, leasing, purchasing a car, renting; all these circumstances involve your credit, and there's nothing that looks worse on your credit reports than a bankruptcy will.
When a creditor is deciding whether they should extend credit to a person, they will mainly scrutinize the ability of the customer to make routine payments according to three things; the recent debt-to-income ratio, how stable their finances are, and history of making payments. With a bankruptcy scar on your credit report, your stability and financial history aren't going to look fantastic to anybody.
Your credit report(s) can include info on your bankruptcy filing for as much as 10 years following filing. While it's undoubtedly possible to acquire credit following a Chapter 7 or Chapter 13, assuming your credit report is what your credit worthiness is based off, it will be really difficult if not unachievable in the majority of situations. If you do begin to re-establish your credit, you'll end up paying "high-risk" interest rates on just about everything including credit cards and mortgages.
How It Will Affect Buying a Home
While it is certainly not impossible to receive a home loan after a bankruptcy, it is more difficult. Private mortgage companies will put the borrower under considerable scrutiny unless the bankruptcy is very old and credit has been excellent since. Even if those tests are passed, it can be difficult to get rates as good as a person with a comparable credit score and a clean credit history.
FHA mortgages more often than not require the person borrowing has founded at a minimum two additional credit accounts from the time of filing for bankruptcy, which should be kept in proper standing. The applicant should also wait for a time period of at a minimum 2 years after discharge for Chapter 7's or 1 year following Chapter 13's.
VA financing traditionally need a two year period of stable credit following discharge also, though special situations can be taken into account.