In 2008 there were about 1 million bankruptcy filings. This means that in the US one in three hundred people declared bankruptcy. But a bankruptcy is still, for the most part, considered a last-ditch option for dealing with overwhelming debt. Most of your assets go away, and your credit rating takes a fall (a bankruptcy for ten years, whereas a foreclosure remains on it for seven). Most homeowners will avoid a Chapter 7 bankruptcy and instead file for Chapter 13 if they want to avoid a foreclosure.
A Chapter 7 filing can wipe out unsecured debts, but secured debts are tied to a specific asset, such as a mortgage secured by a home which reverts to the creditor. A Chapter 13 bankruptcy doesn’t actually wipe out the debt but can shield debtors from their creditors for several months during the forbearance period until a court-ordered repayment schedule can be worked out. During this time most homeowners try to work out a loan modification program.
The FICO score helps the creditor understand the borrower’s likelihood to repay a debt. Your FICO score is composed of your payment history and the length of credit history, along with looking to see if are you adding additional credit and what your current credit line limits and type. After having said that, many lenders will look at your credit and when they see that you have used credit counseling, is can throw up a red flag for them. They may not use it against you but could. My advice is always call your credit card companies first on your own and work with them. They would rather work with you instead of a counseling company. You can very often get as much done as they can and that will never affect your credit. It will also save you some money. My two cents…