Disadvantages Of Bankruptcy

Many people will use bankruptcy as a debt repayment option without fully understanding all of the disadvantages of bankruptcy. While a lot of bankruptcy trustees claim bankruptcy provides you with a clean slate to start fresh, many people realize after-the-fact that filing for bankruptcy can actually push you into a deeper financial hole. After all, bankruptcy was created to be disadvantageous to all involved, not just the creditor. That means you really need to understand your financial situation before filing for Chapter 7.

The first of all, the biggest disadvantage of bankruptcy is that it doesn’t eliminate all your debts. You can have debts even after your assets are liquidated and distributed to your creditors. These debts can be collected even after your case is closed. Anyone who cosigns your loan can also be liable.

Your property will be sold by the trustee. In some cases, your debts that couldn’t be repaid after the distribution of assets will be discharged. Any inheritance that you get after filing for bankruptcy can also be considered property and can be used to repay creditors.

When deciding to file for bankruptcy, particularly Chapter 7, you need to be 100% certain of your decision as you cannot withdraw from your commitment. This means that once a discharge has been granted, you cannot avoid or repay the debt, resulting in damaged credit for the next seven years. With a damaged credit rating, most lenders will not consider any credit applications you make, even if you have the means to repay such credit several times over.

Debtors are able to file for Chapter 7 for nearly any amount of debt, however a minimum of six years must elapse before a debtor can file once again.

The procedure to file for bankruptcy also takes its toll on your health and mind. You will be constantly reminded of your conditions. It is a traumatic situation for most.

For many, the stress of bankruptcy leads to marital problems, including divorce. In some cases, this can deepen the financial strain of a discharged bankrupt, leaving them feeling even more defeated or beaten. Remember, six years must pass before the next bankruptcy filing. Relationship stress can cause problems with social circles and not surprisingly, bankruptcy also increases the likelihood of alcohol abuse. The feelings of loss are rather strong in those who have gone bankrupt.

Such feelings of loss, defeat and trauma often make managing regular relationships with other family and friends difficult. The difference in opinion among friends and family, combined with the feelings of guild and shame, often alienate bankrupt individuals from those who have been closest to them.

Despite the disadvantages of bankruptcy, some advantages exit for borrowers who are overwhelmed by tremendous debt loads. One of the biggest advantages is that borrowers who are looking to file for bankruptcy must enroll in a credit counseling program. This program can teach many borrowers how to manage their finances and, in some extreme cases, can help borrowers avoid bankruptcy altogether. However, when there are no other options available, borrowers should consider bankruptcy as a last resort.