Are you drowning in debt and thinking liquidation may be the solution to your money problems?
Before acting on it, you should learn about 7 ugly consequences of filing for bankruptcy.
The bankruptcy code consists of different chapters, Chapter 7 and Chapter 13 being the ones consumers usually file under.
In many cases, filing for bankruptcy helps, but there’s a steep price to pay if you’re looking to get rid of debt through liquidation.
Bad money problems require drastic measures, but insolvency shouldn’t be the go-to fix for all of them.
Before filing for bankruptcy and expecting any miracles, here are 7 consequences that you should consider first.
Bankruptcy filings affect your credit report
Filing for bankruptcy may help you get rid of many debts, but it’ll stay on your record for at least a few years.
This means your credit report will have to suffer. And there’s nothing you can do about it, except wait for time to go by while you struggle to obtain credit, should you need it.
On the bright side, bankruptcy prevents creditors from harassing you, which is a big emotional stress reliever! On the other hand, say goodbye to improving your credit score anytime soon.
Filing for bankruptcy is public record
Whether you like it or not, filing for bankruptcy becomes public record.
This implies all your personal financial information may be accessed by the public.
If you thought a bad credit score is reason enough to be denied credit or even a good job, imagine what banks and potential future employers might think when they see you’re bankrupt.
If you have a problem with potentially having your privacy invaded, think twice before filing for liquidation.
Bankruptcy doesn’t discharge all types of debt
Unfortunately for many, filing for bankruptcy won’t help you get rid of student loans or child support & alimony.
More often than not, the main reason many file for bankruptcy involves medical debt. Loss of income and credit debt are common causes as well.
But if you’re looking to erase your child support obligations or student loans, filing for bankruptcy won’t help.
Possible property & asset loss
If you’re not able to exempt your properties, you could lose them.
Often times, erasing debt isn’t a magical immediate consequence that comes with filing your papers.
Instead, you could potentially deal with your properties being sold in the attempt to cover at least part of your debts.
Difficulty getting approved for a mortgage
Remember how filing for bankruptcy means having your credit score weighed down by a lot?
If having trouble to obtain credit is an ugly consequence, being unable to get approved for a mortgage is even worse.
Unless you already have a home to call yours, think twice before filing for bankruptcy.
It could possibly take years before you’ll get approved for a mortgage, and even then, you’ll probably have to pay a huge interest rate and that’s definitely not what anyone wants.
Difficulty getting approved for credit cards
If you want or need to apply for a new credit card, having bankruptcy on your record will make it difficult for you to get approved.
However, in some cases, banks will issue credit cards even for those with bad credit. The bad part though is, you should expect to pay a really high interest rate. Again, it’s not something you might want.
Some debts might still not be erased
Many think filing for bankruptcy means having debt cancelled with a magic eraser. But that’s not the case.
Some debts still need to be paid, such as mortgage liens, even after the bankruptcy process is completed.
Failing to make payments under Chapter 13 is risky, because of the possibility of your bankruptcy being converted to a Chapter 7. In which case, your non-exempt properties you were trying to protect could be sold.
Filing for bankruptcy can help, but it also comes with potential terrible consequences.
Before deciding to intentionally go bankrupt because of money problems, consult a lawyer to find out more about the risks involved.