What Are the Drawbacks of Declaring Personal Bankruptcy?
Bankruptcy can bring relief to those who find themselves overwhelmed with excessive credit card debt, or other kinds of debt for that matter. Nevertheless, bankruptcy does have its drawbacks, and anyone considering filing for bankruptcy should seriously consider all the consequences, both good and bad.
The most obvious consequence is that your credit will be negatively affected when you declare personal bankruptcy. Of course, this might not be very important to you. If your financial situation is severe enough for you to consider chapter seven or some other form of bankruptcy, then your credit score is probably not very high on your list of priorities. Still, you should be aware that you may have trouble getting loans. You may have to pay higher interest rates, and your credit report will show a record of your bankruptcy for 10 years.
Another important consideration is that bankruptcy will not eliminate all kinds of debts. In most cases, your student loans, taxes, child support obligations, and criminal fines will not be discharged in bankruptcy. If these fees represent the majority of your debt, then you simply may not benefit from filing bankruptcy.
There’s also a possibility that you may lose some of your personal possessions. Of course, if you’ve reached this stage in your financial life then you probably don’t own a lot of high value items. Still, you may have to give up certain assets which are not considered exempt for the purposes of the bankruptcy process. Depending on the value of your home and the homestead exemption in your state, your home may be in danger. This is usually not the case, but you should consider this carefully with your lawyer.
One drawback of bankruptcy which you may not have considered is the effect that it will have on your creditors. I’m not simply talking about large, impersonal corporations like credit card companies. Small businesses who extended you credit may be left empty handed if your debts are wiped out. Yes, you have to do what you have to do for your own security and that of your family. But it’s still something to think about.