What is the Downside of Filing for Bankruptcy?
Bankruptcy is a legal process that can help people wipe out their debts and get a fresh start. It’s also a way to stop foreclosure and creditor calls, and it can offer breathing space from the stress of trying to pay bills.
There are many benefits to filing for bankruptcy, but it’s important to be aware of the downsides as well. Some of the negatives are significant and lasting, so it’s crucial to consider them before making a decision.
The most obvious disadvantage to filing for bankruptcy is that it will negatively affect your credit score, which can make it harder to borrow money in the future. This will be a big impact if you’re trying to buy a car or home, get a credit card or get a loan for your business.
Debt consolidation and discharge: If you file for Chapter 7 bankruptcy, most of your unsecured debts can be forgiven or discharged. These can include debts you owe on credit cards, medical bills, and other types of loans.
Assets preserved: In most Chapter 7 bankruptcy cases, you can keep your house and your car (although some state laws may limit this), and you can keep other assets you might not have kept otherwise. In some states, you can even retain your retirement funds under the chapter.
You can also use your tax refund to pay down your debts, which can save you a lot of money on interest payments over the long run. You won’t be obligated to repay the lion’s share of your debts after you file for bankruptcy, so this will help you build your savings faster.
Financial Coaches: If you’re having trouble paying your bills and are thinking about filing for bankruptcy, talk with a professional financial coach. These professionals will work with you to create a plan that works best for your situation and your budget. They will also guide you in finding ways to eliminate your debt without filing for bankruptcy.
Attorney fees: Depending on the complexity of your case and where you live, attorneys can be expensive. They can cost hundreds to thousands of dollars, especially in Chapter 7 bankruptcy cases.
Loss of Property: You can lose a large portion of your possessions in bankruptcy, but this isn’t something that should be considered an immediate disadvantage. If you’re not sure whether you want to file for bankruptcy or you have questions about the process, it’s always a good idea to consult with an attorney.
In addition, you might be able to negotiate with your creditors to reduce your debts or lower your monthly payment. This can be a more affordable option than bankruptcy and will have less of an effect on your credit score.
No one wants to be in debt, but some of us are faced with situations that make it difficult to make ends meet. The best thing you can do is to take charge of your finances, get a professional financial coach and try not to think about bankruptcy as a punishment or something to feel ashamed about.