Consequences of filing bankruptcy
Bankruptcy may seem like an easy solution to debt problems, but it is not without consequences. It’s true that many of your debts can be “erased,” but there is a price to pay for that freedom. I always advise my clients to explore all possible alternatives to bankruptcy, from cutting expenses and simplifying their lifestyle to selling unnecessary property and negotiating with creditors. Sometimes bankruptcy really is the best option, so it is wise to familiarize yourself with some of the possible consequences you will face after filing.
The negative impact that most deters people from filing for bankruptcy is lower credit scores. This can be a real problem when you need to apply for a car or home loan. You can take steps to rebuild your credit and improve your score, but it takes time. You may need to start with a small secured credit card that you pay off in full each month. If you need to get a car loan right after filing, you may have to put down a large down payment and pay a high interest rate, but after a while, you may be able to refinance for lower payments and better terms.
Having a bankruptcy filing on your credit report for 7 to 10 years can also be a burden. Some landlords refuse to rent to people who have a bankruptcy on their record, and some employers even require a clean credit report for job applicants.
Bankruptcy discharges most unsecured debts, but it will not eliminate student loans or back taxes. You will also remain responsible for any alimony or alimony you have been ordered to pay; however, you may be able to modify your payments based on your new financial situation. If you own a car or a house, there is a chance that you could lose this property in a bankruptcy. Before this happens, we’ll work together to take advantage of the many exemptions available to protect your property, and I’ll guide you as you make important financial decisions.
If you only look at the negative consequences, bankruptcy can be scary, but there are many positive benefits as well. If you are behind in paying your debts and have been receiving calls from creditors, filing for bankruptcy initiates the automatic stay and ends those calls. If you file a Chapter 7, there is a good chance that you could be debt free after filing, and if you file a Chapter 13, your monthly debt payments could be greatly reduced. Even if you have some non-cancellable debt left over after you file, paying off some of the debt can make your budget more manageable and might even start building your emergency savings account.
Most people don’t file for bankruptcy until they’ve fallen behind on debt payments, and at this point, your credit score has already taken a hit due to late or missing payments. Filing bankruptcy puts an end to missed payments and begins your new path to financial security. Once unmanageable debt is eliminated, you can strategically use new credit and make payments on time; You may end up with the best credit score of your life after a while.
While it can be sad to lose a home or car, this is also your chance to be free of debt that you really can’t afford. Then you can shop wisely and make your life less stressful with reasonable debt payments.
weighing your options
If you’re having trouble sorting out the pros and cons of filing for bankruptcy, let’s work together to point you in the right direction. There may be options that you are unaware of that can take care of your debt while preserving your assets and livelihood.