[See 6 Surprising Ways to Boost Your Credit Score.]
After the debts are discharged, it's also smart to check their credit report and "make sure that everything that was discharged in the bankruptcy is marked on their credit as discharged," Epstein adds. She's seen people qualify for a mortgage within two or three years of a bankruptcy, depending on the circumstances.
5. Bankruptcy is a cure-all. Chapter 7 bankruptcy discharges certain debts, while Chapter 13 may reduce or reorganize debts. However, neither one offers an easy solution. "People sometimes think it's going to solve all their problems, and it doesn't," says Miller. "In Chapter 7, you could lose property. If you go into Chapter 13, you could keep your house but also have to keep making payments and have a very modest lifestyle for at least three to five years."
Filing for bankruptcy isn't cheap, either. According to a study released this month by the National Bureau of Economic Research, the average bankruptcy fees increased from $921 to $1,477 after 2005's BAPCPA was enacted. Before filing, applicants are required to go to credit counseling, during which the counselor may explain other options like negotiating a payment plan with creditors. "Bankruptcy is a major disruption in your life," he says. "If you can work it out with creditors, go that route."
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