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Should I File for Bankruptcy?

Dear Experian,

I have multiple charged off accounts and want to know if I should file bankruptcy or try to pay off the debt? I owe quite a bit.

– AER

Dear AER,

There is a lot to consider before deciding whether or not to file for bankruptcy. A bankruptcy is the greatest indicator of risk in a credit report, and so has the most serious and long lasting impact on your ability to obtain new credit. Therefore, filing for bankruptcy should always be a last resort.

The two most common types of bankruptcy are Chapter 13 and Chapter 7. In a Chapter 7 bankruptcy, you do not repay any of the debt owed, and the bankruptcy listing remains on the credit report for ten years from the date it is filed. Under Chapter 13 bankruptcy, you are responsible for paying back a portion of the debts that you owe through a debt repayment plan. Chapter 13 bankruptcies are removed seven years from the date it is filed.

Things to Consider Before Filing Bankruptcy

In both cases, having a bankruptcy in your credit history will seriously affect your ability to obtain credit for as long as it remains on your report. It can also affect your ability to qualify for things like an apartment, utilities, and even employment. Even car insurance rates may be affected.

Before making a decision, it may be helpful to order copies of your credit report from each of the three credit reporting agencies and make a list of all debts owed. You should also seek advice from a qualified credit counselor or financial advisor. By consulting with an expert, you may find you have other options. Through careful budgeting you may be able to repay the debts you owe over time. Debt consolidation or even debt settlement may be viable options, as well.

You May Have Other Options Other Than Bankruptcy

With debt consolidation, you may be able to roll all your debts into one new account, enabling you to pay off your past due amounts and make one monthly payment going forward. Having just one payment may make it easier to manage your existing debt.

Debt settlement requires negotiating with your creditors to accept a lesser balance, reduced interest rates or both in order to settle the debt. Debt settlement is considered negative because it means that you did not repay your debts as agreed. However, the impact from settling an account will probably not be as great or as far-reaching as declaring bankruptcy.

Still, there may be some instances where bankruptcy is the best, or only, option. If you are truly unable to repay your debts, filing for bankruptcy protection will stop collection efforts so you can begin to recover and get back on your feet. Filing for bankruptcy is a major decision, and one you will live with for years to come, so don’t be afraid to ask for help when determining whether this is the best option for you.

Thanks for asking,
The “Ask Experian” Team

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