Bankruptcy doesn’t always fix your financial situation. Yes, it may help you rearrange your finances, discharge some of your debts and eventually get back on your feet. Unfortunately, it’s not always the case. Filing for bankruptcy has its downsides, with some having long-lasting adverse effects on your financial situation.
Before filing for bankruptcy, be sure you’ve considered all of the advantages and downsides and spoken with an attorney. Visit the Law Office of Robert C. Hahn, III, P.S. and schedule a free consultation. Their team of dedicated lawyers will guide you through the process and help devise better financial management strategies.
Here are some of the disadvantages and potential risks of bankruptcy:
1. Credit Cards
When you file for bankruptcy, many credit card issuers automatically deactivate whatever cards you have. Luckily, you can qualify after up to three years, although at a higher interest rate.
2. Assets and Possessions
Filing a chapter 13 bankruptcy could cause you to lose your possessions, but only if you miss the court-mandated payments. In a chapter 13 bankruptcy, the court reorganizes your finances so that you can begin paying off your debts.
Failure to timely payments may culminate in creditors selling off your assets to repay the money, as authorized by the court. Those who fail to make payments may lose their homes, automobiles, and any other secured property. Filing for bankruptcy could also affect those close to you and cause you to lose some of your most treasured relationships.
Individuals who had their relatives or friends act as co-signers also stand to lose their possessions. The court may hold them responsible for paying part of the debt.
While bankruptcy may erase most of your, certain ones remain exempt such as:
- The majority of student loan debt
- Alimony as dictated by the court
- Child support
- Fines to the government.
Consequently, a Chapter 13 bankruptcy settlement may be overturned if the debtor fails to pay these debts.
3. You Stand to Lose Some of Your Close Friends and Relatives
Filing for bankruptcy could also affect those close to you and cause you to lose some of your most treasured relationships. Individuals who had their relatives or friends act as co-signers also stand to lose their assets.
The court may hold them responsible for paying part of the debt. In extreme cases, these individuals may be forced to sell some of their belongings to be absolved from these debts.
4. You Can’t File for Bankruptcy Again
Filing for a chapter 13 bankruptcy, also known as a wage earner’s plan, often results in individuals getting barred from using the service for four years. This is also the case for a chapter 7 bankruptcy (liquidation); the only difference is you can’t file again for up to six years, though it may vary by state.
This can be quite an inconvenience in the event you find yourself going through financial troubles again.
5. Privacy and Confidentiality
Filing for bankruptcy means that your details become a part of public record; anyone with an internet connection can get access to these files. Employers in most jurisdictions can request your credit report to learn more about your habits. What’s more, applying for a federal job, where security clearance is necessary, employers may need to evaluate your credit report and may affect your application.
6. Access to Credit and Lending Facilities
Bankruptcy often leaves a negative impact on your credit and may affect how lending institutions view you. Having a bankruptcy on your credit report may cause creditors to refuse you credit or offer you higher interest rates and less favorable terms if they decide to give you credit.
The best credit card deals necessitate a solid credit score and credit history. This means you must have a credit score of at least 700 and credit card balances that are modest. Bankruptcy is a black mark that reduces your credit score by 100 points or more.
As a result, you may have to wait years before you can qualify for the best credit card offers again.
7. Mortgage
Having a bankruptcy on your credit report could interfere with your eligibility for getting a mortgage by making it difficult to receive unsecured credit.
There are two types of credit: secure and unsecured credit. Banks and lending institutions hold on to assets such as a car or a house in exchange for a loan in the former. The contrary applies for unsecured credit; here, the bank or lender has no asset to hold onto in exchange for granting you a loan.
The lender’s risk is substantially larger than secured credit, hence the higher interest rate on these loans. As a result, lenders may reject your mortgage application or charge you considerably more interest and fees.
Bankruptcy is often regarded as a last resort option for persons experiencing financial difficulties. It might provide you with the opportunity to get your finances in order and, in some cases, a clean slate. However, it might impact your assets, with some having long-lasting negative effects on your financial situation.
