Bankruptcy is a means to get out of debt. Some feel that it is a quick escape from mounding debt, and they make it their number one option. However, bankruptcy is no little thing and should be weighed carefully.
Understand that filing bankruptcy means you will pay a very small percentage or nothing at all toward the debts you owe. Your creditors clearly do not want that and they do have a say. That means they and the courts will require detailed explanation for why you can not pay and this can get personal. Therefore, while the act of filing for bankruptcy is relatively painless, the entire process is far from that.
Even if you’re successful, there are multiple long-term impacts that you’ll want to consider carefully before taking such a drastic step.
You will no longer be eligible for any decent credit. That means that if you are able to receive a significant loan, for instance a home loan, you will be subject to extremely high interest rates which can lead you right back into financial ruin. Any credit cards that you were unable to pay will be lost, and other companies may decide that you are no longer a good risk and terminate your credit with them.
Also, not all debts are covered even by a bankruptcy filing. Student loans, back taxes within the past three years and select other debts are generally exempt from bankruptcy protection.
A bankruptcy stays on your credit for ten years, and it is very difficult to rebuild good credit afterward. Though your FICO scores are very important, nothing is looked upon more seriously and has a more negative effect on your credit than bankruptcy.
In addition to sacrificing any chance of good credit for years to come, you may also be required to sacrifice some of your belongings. Though the courts usually allow you to maintain possession of your primary residence and your car, any other real estate or personal property of great value may be confiscated.
As with any legal proceedings, bankruptcy costs money. You will be required to pay a lawyer and any court costs incurred. When you are already in financial trouble, this can be a very unwelcome expense.
There are some positives to bankruptcy as well. The debt collectors will stop calling once they receive word that you have filed bankruptcy. Also, you are protected from wage garnishment and from loosing your primary residence in foreclosure. If these things are eminent and you have run out of options, bankruptcy may give you a fresh start so that you can begin to rebuild your credit.
Author: William BlakeThis author has published 28 articles so far.