- When you cannot afford to pay credit cards or some other similar type of loan or account, the account may go into default. When this happens, the creditor can then take you to court and try to get a judgment against you. With this judgment, your creditor can then try to collect through wage garnishment, levying your bank accounts or through other methods. Depending on the size of the debt, the creditor may not go through the trouble of collecting the money, but they could report the default to the credit bureaus.
- Instead of allowing your accounts to go into default, you may consider filing for chapter 7 bankruptcy. With chapter 7 bankruptcy, you can have all of your debts eliminated with the help of the bankruptcy court. Through this process, the bankruptcy court has the right to take your property and liquidate it to repay your creditors. After that takes place, they eliminate the rest of your debts and your creditors can no longer attempt to collect from you.
- Another option that you may want to consider is chapter 13 bankruptcy. With chapter 13 bankruptcy, you enter into a repayment plan with your creditors. The bankruptcy trustee helps you set up the plan with your creditors and then you pay the bankruptcy trustee every month. The trustee then uses the money to pay your creditors for you. At the end of the plan, any debt that is remaining is discharged by the bankruptcy court.
- The long-term impacts of bankruptcy will be more damaging as your credit score will be lowered more than if you simply default on a single debt. The bankruptcy will remain on your credit report for 10 years. If you try to get financing during this time, it may be difficult to qualify and you may only qualify for a high interest rate. When you allow your accounts to go into default, you will also have to deal with the impact of the late payments leading up to the eventual default.
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