Here's what bankruptcy does:
It wipes out some of your debts so you are not required to pay them.
It stays on your credit report for up to ten years.
It makes it more difficult and more expensive to obtain credit in the future.
It keeps you from being eligible for certain types of mortgages, such as FNMA.
Here's what bankruptcy doesn't do:
It doesn't wipe out student loans.
It doesn't prevent a secured creditor from repossessing property, such as a car or a home.
It doesn't eliminate child support or alimony obligations.
It doesn't eliminate tax debts.
A common misunderstanding we've heard about bankruptcy from our members is:
I don't owe those debts anymore because I filed bankruptcy. They shouldn't be on my credit report. WRONG. The debts you discharge in bankruptcy remain on your credit report and show that they were discharged in bankruptcy.
Many employers, landlords and insurance companies will pull your credit as part of the application process for a job, and apartment or insurance. They will see that you chose not to live up to your legal and moral obligations to pay your debts.
Bankruptcy is easy. Living up to your obligations isn't always easy. If you're struggling financially, consider these tips to dig out and dodge the bankruptcy bullet:
· Talk to creditors. The sooner, the better, particularly if you think you soon may fall behind on payments. Making a good faith effort early on could be the most important move you make to protect your credit during tough times.
· Consider refinancing your home. A lower monthly payment could give you a much-needed financial cushion and allow you to pay down other debt. Ask the credit union to run the numbers, based on your credit score. Remember: Avoiding bankruptcy protects your credit score.
· Spend smart. Find hobbies that don't require opening your wallet. Identify spending leaks. Ask family members to identify less-costly alternatives.
· Don't add new debt. Keep balances low, and don't sign up for any more loans or credit cards. Get off prescreened credit card and insurance solicitation list at optoutprescreen.com or call 888-5opt-out.
· Steer clear of credit repair scams. If you see a promise to eliminate bad credit or erase negative information, run the other way. It's a scam. Visit fraud.org for more warnings about credit repair scams.
· Get help. Ask the credit union about consolidating credit card debt and how to connect with local credit counseling assistance. Visit nfcc.org or call 800-388-2227 for the consumer credit counseling service office nearest you.
· Contact us for help with budgeting. We'll be happy to sit down with you and discuss a budget and plan for getting out of debt. And don't be embarrassed to ask for help. It takes courage and integrity to reject the bankruptcy option.