The main issue that discourages most people from filing bankruptcy is the detrimental effect is has on their credit. It’s true that a bankruptcy can stay on your credit report for up to ten years and it seriously hurts your credit score. However, not filing for bankruptcy and allowing your debts to go to collections will also negatively impact your credit.
Depending on the kind of bankruptcy you file, Chapter 7 vs Chapter 13 bankruptcy, your credit score will decrease anywhere from 160 to 220 points. This is enough to take a good credit rating down to a fair or poor one. Since most lenders decide whether or not to extend you credit based on your credit score, a bankruptcy will make it much more difficult to qualify for an auto or home loan or credit cards.