Obtaining a bankruptcy is probably the worst one time action that you could do to your credit report and your credit score. Obtaining a bankruptcy not only crushes your credit score, but will keep it that way for up to ten years. As such, should you want to obtain a credit card or a loan of any kind, it will be very hard for you to be able to do so. As such, it is important to consider whether obtaining a bankruptcy is worth this disadvantage.
Due to the damage that filing for bankruptcy can create, you should look for the warning signs that you may be headed down the bankruptcy path in order to try to avoid filing for the same. Even though financial difficulty is a possible warning sign of a looming bankruptcy, it is important to recognize the distinction between financial difficult as a result of poor budgeting and financial difficulty as a result of uncontrollable debt. Bankruptcy will not remedy poor budgeting. If you spend as much money as you make but you have no debt, bankruptcy can do nothing for you. If, however, you have uncontrollable debt as a result of credit cards or other secured (with the exception of your mortgage) and unsecured (with the exception of your student loans) loans, bankruptcy is a possible option.
As stated above, bankruptcy is an extreme measure that will wipe out most of your debts and give you a “fresh start,” but as payment for this “fresh start” your credit score will be destroyed. As such, you should try to recognize the warning signs of bankruptcy in order to attempt to avoid obtaining the same. One of the biggest warning signs of a looming bankruptcy is paying debt by obtaining debt. This practice occurs most often in the form of credit card borrowing. In other words, taking a cash advance from one credit card in order to make a payment on another credit card is a sign of very serious financial instability. If you continue this practice, all of your credit cards will be “maxed out” and you will be unable to obtain new cards. As such, you will no longer have any money to make your credit card payments. Depending on the number of credit cards that you have and the credit limits of such cards, your debt could range from a couple of thousand dollars to several tens of thousands of dollars.
Although other warning signs exist, such as using credit cards to pay bills, spending more money than you make, and being unable to support your daily life, credit card borrowing is the most severe. As such, if you recognize that this situation is occurring, you may want to consider debt consolidation and a serious change in your financial lifestyle.
Truthfully, if bankruptcy is your only viable option, you should obtain the same so that you can get your “fresh start.” Just know that as a result, your ability to obtain a loan for any reason will be severely limited for a very long time.