If you're to believe the ads, declaring bankruptcy is a quick and easy way to solve money problems. But except in cases of a total financial collapse, for example, due to crushing medical bills, bankruptcy is no cure-all. There are two types of consumer bankruptcies:
Chapter 13 or "reorganization" allows debtors to pay off a default over a period of three to five years, rather than surrender property.
Chapter 7 or "straight bankruptcy" involves liquidating all but certain exempt property. (Each state has specific exemptions.)
Personal bankruptcy leaves a scar on your credit rating for 10 years. That means you'll have difficulty:
Finding a place to live. If you want to buy a home, your mortgage application will likely be denied.
Obtaining a credit card. That makes simple transactions like renting a car or reserving a hotel room difficult. While there are credit cards marketed to bankrupts, they have extraordinarily high interest rates.
Finding lower cost insurance. Some companies charge higher premiums to those with negative credit ratings.
If you are having credit problems, visit your credit union as soon as possible. We don't offer miracle cures, but we can help you regain your financial health by providing free, confidential assistance.