Disadvantages of Personal Bankruptcy
Bankruptcy offers an opportunity for many individuals in financial turmoil to have a fresh financial start by removing their debt and working with creditors.
People who are facing with the possibility of foreclosure or short-sale of their home may find bankruptcy to be a great way to maintain ownership of their possessions while trying to get back on their feet.
The two primary options for individuals filing for bankruptcy are Chapter 7 and chapter 13 of the bankruptcy code.
It is important to seek a legal professional to understand which chapter you may qualify for and which is the best option for you.
If you are considering filing for bankruptcy, you may be wondering what the downsides of filing for bankruptcy are.
There are some very serious long term impacts of bankruptcy that you must consider prior to filing.
Downsides of Filing for Bankruptcy
1) drop in credit score
2) losing assets
3) losing any credit cards you may have
4) some lenders not issuing you credit
5) the stigma associated filing for bankruptcy
Due to these downsides, some debtors consider debt consolidation or debt management.
That being said, if you already have bad credit, filing may improve your credit faster if you are able to repay your debts rather than not filing for bankruptcy at all.
A strong credit score can be important for both financial and non-financial future as it is looked at by lenders and even by employers. For further information and personalized advice, please seek the help of a bankruptcy attorney in your area.
Jon’s Debt Battles
I have unpaid medical bills and an unpaid payday advance loan , I am several thousands of dollars in debt. If I should have to file for personal bankruptcy, how would this affect future rent and car loan situations, etc.? I have bad credit already
Chapter 7 Bankruptcy Disadvantages:
1. Your credit score may drop 50-100 points. In your case if it is already shot, BK may actually improve your credit score after you file because you will no longer be delinquent on anything.
2. You lose any credit cards that you have, no matter what you owe on the cards.
3. You may have assets that can be liquidated. Although, in California, we tend to look towards large assets for liquidation, rather than small ones; We want cash in BK, not grandma’s hand knitted sweater she made you.
4. There is a stigma to Bankruptcy. Some people have hang-ups about Bankruptcy. Your decision is whether you want to trade off people trying to levy judgments upon you, taking your assets, harassing you at work and on the cell phone, or filing Bankruptcy and having someone think less of you BUT be unable to do anything to you.
Chapter 13 Disadvantages:
1. As above, but now you are on a debt payment plan for 3-5 years.
2. You don’t lose any of your assets, but now it becomes difficult to acquire a loan for a car or house.
