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The difference between default and bankruptcy

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Topics addressed on March 19, 2008:

The difference between default and bankruptcy

Dear Max,

Which is the lesser of two evils, bankruptcy or default?

- DBU

Dear DBU,

Rarely does a person file for bankruptcy without already having defaulted on at least one credit account. So, if a person defaults on an account, meaning they have failed to repay it as agreed, they have taken the first slippery step toward bankruptcy.

That doesn’t mean the person will declare bankruptcy, but they are a step closer to it. A default occurs with only one account. The problem is that when a person has serious difficulty with one debt, they often are struggling with their other debts, as well.

Bankruptcy is among the worst things that can appear in your credit report. When you file for bankruptcy, you are telling all of your lenders that you will not be able to pay them in full, or at all.

As a result, it will be very difficult, if not impossible to qualify for new credit while the bankruptcy appears on your credit report.

Thanks for asking.

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