Bankruptcy is a federal court process in which a person under heavy debt has the opportunity to eliminate or wipe out his/her debts by different means. The person who is facing a severe debt issue can either sell off their assets to meet the repayments to creditors or can devise a new repayment plan. Most individuals file for Chapter 7 or Chapter 13 according to their financial condition. Whatever the case may be, bankruptcy is something that should be avoided at all costs. Let's take a look at some reasons to avoid filing for bankruptcy.
The Adverse Effect It Has On Your Credit History
Chapter 7 and Chapter 13 bankruptcy have an adverse effect on your credit rating. Your score can decrease as much as 250 points after you file for bankruptcy. The worst part is that this information stays on your credit report for almost up to a decade according to what type of bankruptcy you filed. So you can forget about acquiring new loans for the years to come.
You Can Lose Property
Once you file for Chapter 7 bankruptcy, you can bet that some of your assets will be sold in order to repay certain debts. According to what your financial condition is and what your state laws are like, it is quite possible that your car and house are sold after filing for bankruptcy.
Some Debts Cannot Be Gotten Rid Of
It is a fallacy that all debts can be completely eliminated for your credit. The truth is that certain types of taxes, student loans, child support, and similar debts cannot be avoided by filing for bankruptcy. So if you are interested in paying off these debts at some point in life, it is a wise decision for you to not file for bankruptcy. It is usually a more viable and convenient option to discuss matters with your creditor and devise a payment schedule with them.
Negative Effect On Your Financial Situation
Bankruptcy will have a negative effect on your finances. If you are thinking of raising a family and nurturing them, it will become quite difficult because basics such as car loans or home loans will not be approved in your case. In some cases, filing for bankruptcy can become an even bigger issue when your employer will lose trust in you. So it is wiser to prevent certain conditions that can create a climate of bankruptcy for you, rather than waiting till it's too late.
Say Goodbye To New Credit
Getting new loans or credit will be close to impossible once you have gone through the bankruptcy process. It will take you no less than 2 years to be eligible for a secure loan. Of course if you want to acquire a loan before 2 years, you can go for a secured loan, but these have extremely high interest rates and aren't worth it in the long run.
So as you can clearly see, filing for any type of bankruptcy can be disastrous for an individual. You should avoid thinking of bankruptcy as a way out of a bad patch. The long term repercussions bankruptcy has on all aspects of your life are not worth going through the trouble.