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How does filing bankruptcy affect you if it doesn't get approved?

A reader asked an advice columnist how filing for bankruptcy but not actually going through with it will affect his ability to purchase a home. The answer may surprise some of our Birmingham readers. After the reader's company took a big hit financially, he and his spouse decided to file for Chapter 13 bankruptcy, but they decided they did not like the payment plan so the bankruptcy was never completed. Turns out he may have been better off had the bankruptcy been approved as the filing is still on his record.

The reason is because just filing for bankruptcy shows up on your credit report just like if you had actually completed it. A Chapter 13 stays on your credit report for seven years while a Chapter 7 stays on for 10 years. The problem is any bankruptcy filing, whether it is completed or not stays on your credit report for 10 years. He may be able to purchase a house at some point, depending on his overall credit, and whether there are other negative marks on his record.

Anyone who is considering filing for bankruptcy or has already been through the process and finalized it may be interested in some tips for rebuilding your credit score. First, stay current on all of your bills. Familiarize yourself with your credit report and work on clearing up any discrepancies or irregularities. If you want to work towards earning the trust of lenders, work towards obtaining credit, but start small. A good start may be a secured credit card. More and more companies are offering a variety of products specifically designed for the post-bankruptcy consumer so you do have options.

Lastly, do not fall for scams or bogus offers of credit repair companies. There are a number of people who work hard at trying to take advantage of already cash-strapped consumers. Know what you are getting into and never pay an upfront fee for services as that is a sign the offer is a scam. And don't close out any accounts you may already have, people often overlook the fact that a part of the credit score is length of credit history with a creditor. The longer you are with a lender the better that account makes your credit score appear, as long as you stay current with payments.

Source: Business Insider, "I'm Bankrupt, But I Want to Buy a House," Christopher Maag, Aug. 15, 2012

Our law firm handles personal bankruptcy, including Chapter 7 and Chapter 13 bankruptcy such as was discussed in today's post. Visit our Birmingham bankruptcy page to learn more.

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