What are the Consequences of Declaring Bankruptcy?

Last Revised on December 14, 2010

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As hard as it is to file for bankruptcy, the after effects of bankruptcy can be difficult to go through as well. Knowing the effects of bankruptcy declaration beforehand may make it little bit easier for you, and therefore we have decided to list the disadvantages of filing bankruptcy here. These negative effects shouldn’t, however, change your decision to file bankruptcy which is usually a last resort much unless you are in the beginning of the entire process and able to pay off your debt.

Effects of Filing Bankruptcy. Here are the top list of things and ways bankruptcy impacts you later on in life:

Credit score: even though there are many benefits to bankruptcy declaration, you have to remember that it can negatively impact your credit score a bare minimum range to an extreme level. That’s the worst drawbacks and top reason why many people try to avoid at all possible cost if they could. The record saying you filed for bankruptcy stays on your credit history report for seven years long. That’s a lengthy period and during that time you will have hard time getting home mortgage, loans, car financed and credit cards. It just makes the purchasing expensive items difficult. This just makes it difficult to obtain new lines of credit.

High interest rates: Once you have declared bankruptcy, the biggest disadvantages you will have is the higher interest rates for loans, credit cards and other financing services. You are considered high risk and thus creditors will charge you high interest rates. People who have filed for bankruptcy are basically paying higher for their purchases.

Personal assets: Depending on the type of bankruptcy you file for and your individual circumstances, you may lose personal assets and properties such as house, cars, or anything of big value. Usually your lenders ask the court to seized, sold and use these assets to pay off the outstanding debts. This is the fastest way to have your personal items of high value repossessed. Some bankruptcy chapters provided protection from these items getting seized from you. Usually if the value of your car is less than how much you owe for it, it will be repossessed.

Car insurance: some people have hard time understanding how bankruptcy should affect your car insurance premium rates, but here is the simple explanation – even though you are the one paying the insurance companies, but if something does happen to you, the car or the other driver they have to pay for all the injuries and loss. Individuals who have declared bankruptcy are considered high risk in both financial and other aspects of the life; therefore insurance rates will be quoted higher.

Difficulty renting house and apartments: landlords can run your credit history after you sign the application paper approving them to obtain it. If you have filed for bankruptcy, the consequences will be having problems renting apartment and house. This result is finding alternative choices with higher rent and locations far away from work, stores and community places.

Difficulty getting good banking deals: people who are filing for bankruptcy will need to close all their bank and credit card accounts. Afterwards, they have hard time reopen the bank accounts as banks pull reports and see negative information about the applicants. So these people have to use alternatives such as prepaid cards, money orders and check cashing services, all of which charge certain amount of fees. All these cost add up over time and they are not able to bring home all the money they make from their jobs.

Some debts remains: One of the biggest misconceptions about bankruptcy is that it will erase all your debts; that’s not true. You will still have to pay your past, present and future student loans and taxes after bankruptcy being discharged. Also if your primary reason for declaring bankruptcy is to avoid paying for child support payments, alimony, other domestic obligations, judgments ruled against you, and debts obtained through fraudulent activities from various lending groups, you will still have to pay for them.

Impacts on spouse: even though you are filing for bankruptcy all on your own individually, it may have negative impact on your spouse. Your debts are your own, but the property that is owned jointly together with your spouse can be at risk. These properties are called Community Property and creditors can go after it if there are many past due obligations. The state that have Community Property law are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin, where creditors can go after properties of your spouse that were acquired during marriage.

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3 Responses to “What are the Consequences of Declaring Bankruptcy?”

  1. Pamela Duhaim Says:
    December 15th, 2010 at 11:35 pm

    There are not only many consequences to filing for bankruptcy, but it is also not free and cost some money. If you file for chapter 7, you can’t buy house for 2 years after filing bankruptcy as you are considered ineligible for home mortgage loan. With chapter 13, this waiting period is 2 years after all the debts are paid off, hold steady employment, no negative entries in your credit report and no major new debts started.

  2. Long term effects of bankruptcy Says:
    December 19th, 2010 at 8:11 pm

    I don’t claim to be an expert on bankruptcy matter, but I do know how filing bankruptcy can affect you in the long run. You have to look at both the pros and cons before starting the process of declaring bankruptcy.
    Here is how it affects you negatively. This is the top 3 ways:
    1. Assets. In chapter 7, you will likely lose your assets such as home equity, cars, bank saving accounts, etc. In chapter 13 bankruptcy, you may be able to keep your assets as you will be paying back debtors on a payment plan suggested by the court.
    2. Credit Effects. In chapter 7, your record will stay for 10 years, whereas filing chapter 13 will stay for 7 seven in consumer credit records.
    3. Employment. This is probably the most severe consequences of filing for bankruptcy. Some jobs, especially government jobs and banking careers is hard to get once bankruptcy is declared, even though it is illegal to fire someone for filing a bankruptcy.

  3. what life after bankruptcy looks like? Says:
    January 1st, 2011 at 12:06 am

    I agree with all the effects of bankruptcy listed above, but I got to add that there is so called life after filing for bankruptcy. You have opportunities to borrow, make purchases, apply for financial aids for college, and get employment. Most important tips to remember is that stay away predatory lender that charge excessively high interest rates on loans and financing. Instead try to save money on a daily basis for emergency funds in a bank savings account, and build credits using secured cards which will erase bankruptcy filing from your record history and ten years won’t seem long then. Sincerely Timothy Williams 420.

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