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Probably the biggest con of a chapter 7 bankruptcy is what it will do to your credit score. Most experts believe it will drop it by as much as 200 points. If you had a decent credit score of, say, 600 going in your score might be as low as 400 after your bankruptcy. This would make it very difficult for you to get any new credit for at least two to three years.
In addition, a chapter 7 bankruptcy will stay in your credit report for either seven or 10 years – depending on the credit-reporting bureau. And it will stay in your public record for the rest of your life.
The debts that won’t be discharged
A chapter 7 bankruptcy cannot discharge secured debts such as a mortgage or auto loan. It can also not discharge certain unsecured debts including child support and alimony, student loan debts and debts obtained through fraud.
The effect on your interest rates
A chapter 7 bankruptcy will definitely have a very negative effect on your interest rates. As an example of this, if you were to get a new mortgage it could have an interest rate of as much as two percentage points higher than if you had not declared bankruptcy. Those two points may not seem like much but can add up to thousands and thousands of dollars over the life of that mortgage.
Even your insurance premium
Most insurance companies now factor in your credit score when calculating your auto insurance premium. This means that if you have had a chapter 7 bankruptcy that has lowered your credit score appreciably, you can just count on paying higher auto insurance premiums.
You could be forced into a chapter 13
If you were to file for a chapter 7 bankruptcy and had a certain amount of disposable income, your case could be converted from a chapter 7 to a chapter 13. Instead of being free of most of your debts, you would then be required to repay most of them over the next three to five years. So instead of getting a fresh start, you would three to five tough years of living on a very restricted budget.