Filing bankruptcy is a major life decision. It’s an admission that your debts have become so overwhelming that it has been legally determined by a judge that there is no way you could ever repay them.
Bankruptcy does have benefits such as preventing foreclosure on your home, repossession of property, or having your wages garnished. However, not all debt is cancelled out by filing bankruptcy: child support, alimony, and government debts like taxes and student loans see more than $1 trillion owed by Americans.
And don’t think you can load up on luxury items such as cars, boats or jewelry prior to filing for bankruptcy, because you’ll still be on the hook for that too!
There are other consequences to consider as well. Your bankruptcy will become public record, and the details can be reviewed by potential employers, banks, clients and businesses.
Under certain circumstances, bankruptcy can mean losing real estate, vehicles, jewelry, antique furnishings and other possessions.
Your bankruptcy can also affect others financially. For example, if your parents co-signed an auto loan for you, they could still be held responsible for at least some of that debt.
Filing bankruptcy also has a serious, long-term effect on your credit and will remain on your credit report for at least seven years (and up to 10 years). A bankruptcy will also affect your ability to open credit card accounts and get approved for loans with favorable rates.
You’ll have to wait to get a loan to buy a home as you won’t qualify for a mortgage for at least a year, and perhaps up to four years. Then, consider the thousands of dollars in legal expenses just to file for bankruptcy. It’s expensive!
It’s understandable that there are going to be cases where filing bankruptcy is unavoidable––just make sure you understand all the ramifications of doing so before filing. And if you do go this route, be sure to pay attention to your financial habits so you don’t find yourself in this position again in the future!