There are very serious negative consequences of bankruptcy, but there are also significant benefits for consumers who can't afford to pay their debts.
When the debts keep piling up and it seems there's no way out, what do you do?
Living like this can be extremely stressful and hard, yet it may seem like there's no good solution for you.
Well, that's not true. There's a lot of options for debt relief, including bankruptcy.
Bankruptcy can offer some significant benefits and results if you're at your wits end with your finances, but it's also important to fully understand the consequences of bankruptcy before you file.
Are you ready to hear what they are? If so, continue reading about the main consequences of filing for bankruptcy.
You Stand to Lose Assets You Have
There is a much greater chance you would lose assets if you file for Chapter 7 instead of Chapter 13, but there's a risk with both branches.
Trustees will take assets from people who file if they can sell the assets quickly to generate some cash. They use this cash to pay off debts that are discharged in a person's case.
It Could Affect Other People
If you happen to have a loan with a cosigner, such as your mom or uncle, that person will get stuck with your debt if you file for bankruptcy. The debt might go away for you, but your creditor will go after your cosigner to collect the money owed.
Your Case Becomes Public Knowledge
After you file for bankruptcy, your case becomes a public record. You can't hide it from people or cover it up. It will be there for people to see.
This is considered a consequence of bankruptcy because of the negative stigma attached with filing for bankruptcy.
You might be asked if you've ever filed for bankruptcy when you apply for a loan, a credit card, an apartment, or a job, and you won't be able to lie about it.
Your Credit Will Suffer
Probably the most significant consequence of bankruptcy is the effects it will have on your credit. It will cause your score to drop as soon as the bankruptcy court posts that you filed.
This posting will remain on your report for up to 10 years, and it will affect your ability to get new lines of credit, including loans, in the future.
The good news is that you can begin working on your credit shortly after you file and with the right steps, you can actually improve your score rather quickly.
The bankruptcy posting may still affect your ability to qualify for loans but this will not last forever. It's important to know too that any type of debt-relief program you use may impact your credit negatively.
Make Sure the Benefits Outweigh the Consequences of Bankruptcy Before You File
As I mentioned earlier, bankruptcy can offer a lot of positives, especially for people who have major debt loads.
A smart move to make is to compare the positives of bankruptcy to the consequences of bankruptcy to ensure that you will experience more positives than negatives.
Check out our blog to learn more about bankruptcy, credit, and personal finances.