Though you want to take the best measures possible to address your considerable debt, you may feel hesitant to jump right into a major process like bankruptcy. You, like many other Texas residents, may feel held back by the stigma that comes along with the process as well as misinformation about how completing bankruptcy will affect your future finances.
Because you may believe that bankruptcy will leave your financial record with too much damage despite helping you discharge your debts, you could find yourself discounting this route as a viable option. However, before you completely throw out the idea, you may want to ensure that the information you have is accurate.
Effects on loans
You may feel particularly concerned that you will no longer have the ability — or at least not have the ability for a long time — to take out a loan if needed. The first thoughts on your mind may revolve around creditors seeing your bankruptcy filing on your record and immediately discounting you as a viable loan candidate. Fortunately, that is not the case. Many people can obtain loans within a year or two of completing the bankruptcy process.
Of course, lenders likely will not ignore your bankruptcy altogether. This mark on your record will likely lead to higher interest rates if you gain loan approval because of your lower credit score. This possibility may have you once again feeling as if bankruptcy will cause too much trouble for you in the future, but a closer look at those interest rates may be worthwhile.
Effects on interest
For example, say you want to take out an auto loan for $15,000 to be paid back over the course of five years. If you apply for this loan within a year of completing bankruptcy, you may face an average interest rate of 10.3 percent, and someone without a bankruptcy on their record may obtain an average interest rate of 7.8 percent. As a result, this situation could have you paying an average of $2,171 more than someone who has not gone through bankruptcy.
Additionally, if you wait two years after filing bankruptcy to take out that same type of loan, your credit score will likely have improved — especially if you make efforts to rebuild it — and you may obtain a lower interest rate. On average, parties who waited two years to take out a $15,000 auto loan paid only $799 more.
While you may end up paying more on loans, the additional costs may not be as drastic as you once thought they would be. Therefore, you may find yourself more willing to consider bankruptcy as an option to handle your debt issues in a beneficial manner than thinking it will only harm your future financial endeavors.