Those who work in the business world understand risk and reward. Sometimes, business ventures do not always go as planned. During difficult financial times, all options are on the table. One of the options that businesses consider is declaring bankruptcy. There are many different types of bankruptcy and one of these is called Chapter 7. It is important for everyone to understand what Chapter 7 bankruptcy is, how it impacts an individual’s credit score, and the challenges that come with trying to restart financially after declaring Chapter 7 bankruptcy.
Understanding Chapter 7 Bankruptcy
There are multiple types of bankruptcy and one of the most common examples is called Chapter 7 bankruptcy. For those who might not know, Chapter 7 bankruptcy is also termed liquidation or straight bankruptcy. When most people think about declaring bankruptcy, this is the type that comes to mind. When someone declares this type of financial difficulty, a court will appoint a trained and experienced individual to look over the case. The job of this individual is to take stock of an individual’s assets, see these assets, and then distribute the income to the creditors who file the appropriate claims. Importantly, an individual declaring Chapter 7 will not sell everything. Some property is exempt. After this, an individual is awarded a brand new start.
How Chapter 7 Bankruptcy Impacts a Credit Score
One of the major side effects of filing for Chapter 7 bankruptcy is that an individual’s credit score is going to plummet. There really is no way to understate the damage that Chapter 7 will do to a credit score. An individual’s average credit score after Chapter 7 bankruptcy could drop by between 100 and 150 points. In some cases, that person’s average credit score after Chapter 7 bankruptcy might even drop by over 200 points. It is easy to see how this can destroy someone’s credit. After this, the bankruptcy will stay on that person’s record for around ten years. Therefore, the impacts someone’s average credit score after Chapter 7 are both wide-ranging and far-reaching.
Consider the Challenges of Debt Financing After Declaring Chapter 7 Bankruptcy
When someone has a low credit score after filing for Chapter 7, it can make it hard to apply for debt financing. Whether it is a new car, a mortgage, or a student loan, banks and lenders are going to think twice after someone has declared Chapter 7. With this in mind, everyone needs to think about their average credit score after Chapter 7. It can make it hard to obtain a loan in the future, which might make it hard to restart financially.
Ensure All Options are On the Table
Every business goes through hard times. During challenging financial situations, it can be tempting to file for bankruptcy, particularly Chapter 7. Unfortunately, there are a lot of ramifications that come with declaring Chapter 7 bankruptcy. Among these are difficulties in applying for debt financing, a low credit score, and challenges rebuilding a business. Because of this, it is vital for everyone to consider all of the available options for a struggling business.