What are the Effects of Filing a Bankruptcy on Rest of Your Life?Last Revised on July 11, 2013
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Filing a bankruptcy can be the most difficult decision you might have ever taken in your life, but it could also something that you have to do it in order to move on with your life. Therefore, it becomes important that you understand the pros and cons of filing a bankruptcy. As easy as many lawyers make this process sound, they might not disclose you full information about the disadvantages of filing a bankruptcy.
How does filing for a bankruptcy negatively affect you?
There are many negative consequences to it, but the key disadvantages that someone should know for sure are:
- Aside from the essential tools and assets such as home and clothing, everything else is seized and goes away to the trustee and gets liquidated to pay off delinquencies. All the non essential property and possessions are not exempted and taken away by the governing body.
- It ruins the credit score and therefore makes it harder to get loans in the future. The credit score can be hit negatively by upto 250 points. Even if you get a loan with a bad credit score, the interest rate for a loan will be much higher. Impaired and loss of credit has so many effects that are beyond the scope of this article.
- Besides loans, it will also make it difficult to obtain a home mortgage, credit cards and any financial credit for ten years or so, depending on the specific case. The time frame the negative effect will last is usually between 7 to 10 years. And you may not qualify for any new secured or unsecured loans for the next 2 to 5 years.
- Many employers do background studies on prospective employees; some even ask for credit report and if there is a history of bankruptcy filing, it may not look good. Especially, when applying for a job in a financial related company. Some landlords also ask for credit history before leasing a home or apartment complex to make sure the tenant does not have a history of bad financial decisions in the past.
- Your retirement account may not be protected. Although many retirement accounts are protected, some may be taken away during the bankruptcy process.
- There is also a misinformation that bankruptcy wipes out all the debts – discharge is the technical word used by lawyers. Debts discharged have limits; for examples debts resulted from felony, fraud and government student loans are not eliminated and you have to pay them back.
- Another bankruptcy cannot be filed for a certain number of years. For that reason, if you can go without filing bankruptcy you should because you may need to use that opportunity later on when you really need and cannot escape without it.
All these are the effects you will face later on, but immediately during the process you will also have to pay court and attorney fees. The cost can vary anywhere between $1000 to $5000, all will be based upon the complexity of your situation and the type of attorneys you hire. One should always carry precaution before making a final decision to file bankruptcy. If it can be avoided, one should definitely do so. So weigh both pros and cons properly.
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