The Hidden Costs Of Filing Bankruptcy
Bankruptcy is a means to get out of debt. Some feel that it is a quick escape from mounding debt, and they make it their number one option. However, bankruptcy is no little thing and should be weighed carefully.
While the law has made it relatively easy to actually file papers, the process - like any legal proceeding - is far from painless. You will have to justify your filing, exposing all your financial history to a judge and opening it to objections by creditors. If you genuinely owe the money, they’re unlikely to settle happily for 10 cents (or less) on the dollar.
Even if you’re successful, there are multiple long-term impacts that you’ll want to consider carefully before taking such a drastic step.
You will no longer be eligible for any decent credit. That means that if you are able to receive a significant loan, for instance a home loan, you will be subject to extremely high interest rates which can lead you right back into financial ruin. Any credit cards that you were unable to pay will be lost, and other companies may decide that you are no longer a good risk and terminate your credit with them.
Bankruptcy does not always mean debt free. Some debts are exempt, such as back taxes within three years and student loans.
A bankruptcy stays on your credit for ten years, and it is very difficult to rebuild good credit afterward. Though your FICO scores are very important, nothing is looked upon more seriously and has a more negative effect on your credit than bankruptcy.
Beyond the credit impact, you may actually be required to forfeit real assets - a boat, expensive jewelry and other items - depending on when they were acquired. Most states make an exception for the primary residence and your auto. If you have secondary property, that may not be protected, however.
Finally, of course, the bankruptcy procedure itself is not free. Courts always have required fees and if you use an attorney that too will cost you. That can add the final straw to an already very bad financial situation.
There are some positives to bankruptcy as well. The debt collectors will stop calling once they receive word that you have filed bankruptcy. Also, you are protected from wage garnishment and from loosing your primary residence in foreclosure. If these things are eminent and you have run out of options, bankruptcy may give you a fresh start so that you can begin to rebuild your credit.
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