When people fall into serious financial problems, their minds don’t waste time before running through the different scenarios of bankruptcy. Many people dread filing bankruptcy because it looks like an admission of failure on your inability to manage your finances efficiently.
However, filing bankruptcy is not inherently bad; in fact, bankruptcy might make sense in some instances. For example, people could end in a bad spot financially even they’ve not made irresponsible financial choices. A lawsuit, divorce, or sudden unemployment are some events that could land someone in bankruptcy. Many people also choose to file for bankruptcy because they don’t have the emotional strength to endure the not-so-civil and outright nasty calls from debt collection agencies.
Bankruptcy would help you get rid of your debt and it would theoretically give you an opportunity to start again on a fresh page. However, before you go ahead to throw in the towel on your debt, here are 4 things bankruptcy can do to you financially.
Getting or staying on the could become an uphill task
If you are declaring bankruptcy, you are most likely unemployed already, but your bankruptcy might make it somewhat hard for you to secure employment in some industries. If you are bankrupt and unable to get a job, it would be much harder for you to climb out of the financial rut especially when your unemployment checks stop being paid.
More so, if you are still employed, you’ll need to be sure that the bankruptcy won’t affect your employment status. Some occupations such as financial planning, accountancy, real estate, and law enforcement often have reservations about people who have declared bankruptcy.
You’ll most likely become homeless
If you already bought/ own a house or if you have equity in a real estate property, you need to think twice before filing for bankruptcy. If the value of your other assets is not enough to pay your creditors, your bankruptcy trustee will consider selling your property and the proceeds of the sale will go to your creditors. If you own equity in a property, the bankruptcy trustee will meet with other co-owners and they’ll find a way to get out the cash equivalent of your equity to repay part of your debt. However, the trustee won’t send you packing from a rented/leased apartment.
You’ll always have to live with the stigma
When you file for bankruptcy, you’ll wear the bankrupt tag for years – those years could be long when they define every aspect of your finances. For instance, a Chapter 13 bankruptcy can continue to show up on your credit report for as long as 7 years. A Chapter 10 bankruptcy can stay on your credit report for up for up to 10 years even though most of your debts could have been settled in the first year after filing.
Your personal credit worthiness will be ruined
It is somewhat hard to state exactly how a bankruptcy will affect your credit score but you can be sure that you’ll drop some important points on your credit score and credit rating. The impact of a bankruptcy on your credit score is a function of your current credit score, the items on your credit report, and the kind of debts that are to be settled in the bankruptcy.
FICO however notes that people with high credit scores tend to lose the most points in a bankruptcy filing. If you have a low credit score, you don’t really have any credit worthiness to lose. Someone with a credit score of 780 can expect to lose as much as 240 points at the end of the bankruptcy.