5 Ways Life Gets Harder After You File for Bankruptcy

A man looks at his bills.

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Before you rush to declare bankruptcy, think about the consequences.

When you're loaded with debt and can't see a light at the end of the tunnel, filing for bankruptcy may seem like a good solution. With a Chapter 7 filing, your assets are liquidated to pay off your creditors and your remaining debts are forgiven (though there are exceptions). With a Chapter 13 filing, your debts are reorganized so they're easier to pay off over time.

Many people assume that following a bankruptcy, they'll simply move on with a clean slate or a manageable debt payoff plan and call it a day. But, there are consequences to filing for bankruptcy. A Chapter 7 filing will stay on your credit report for 10 years, while a Chapter 13 filing will hang out there for seven years. Here are some things you might struggle with during that time.

1. Renting a home

It's common practice for landlords to run a credit check on tenants before signing a new lease. If you have a bankruptcy on your credit report, your landlord might reject your application, even if you earn enough money to cover your rent and then some.

2. Getting a mortgage

A mortgage is a huge loan -- one your mortgage lender wants to get repaid on. But with a bankruptcy filing on your credit report, a lender might worry you're not good at managing your money. Your home loan application could easily get rejected, even if you have funds for a down payment and earn a respectable salary that should allow you to keep up with your mortgage loan.

3. Getting a personal loan

When you take out a mortgage, the property is used as collateral for that loan. If you fall behind, your lender can force the sale of your home and get its money back. With a personal loan, you're not putting a particular asset up as collateral. Rather, personal loans are unsecured. As such, your creditworthiness is a huge factor in determining whether you'll qualify. And a bankruptcy filing could make that quite difficult.

4. Getting a new credit card

Your income isn't the only thing credit card issuers take into account when deciding whether to approve your application or not. They also look at how well you manage your money. And with a bankruptcy on your credit report, a credit card issuer might easily toss your application for fear that you'll charge up a storm and attempt to walk away.

5. Getting a job

Prospective employers don't always run a credit check on job applicants. But if you're applying for a role that requires you to manage money, your employer might dig into your personal credit history. It's a legal thing to do, though they have to ask your permission. And if there's a bankruptcy on your credit report, you may be passed over in favor of a job candidate who doesn't have that red flag.

Bankruptcy can be a reasonable solution when you've landed in debt and need a way out, but you should know that it does have consequences. Be prepared for what may lie ahead if you decide to pursue a Chapter 7 or 13 filing. Most importantly, explore alternative options, like debt consolidation or settlement. You may find you can escape the hole you've dug yourself into without having to go to the extreme of declaring bankruptcy. Bankruptcy could serve as a black mark on your credit report for many years to come.

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