| Disadvantages Of Bankruptcy |
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| Written by Chris Blanchet |
| Sunday, 05 July 2009 13:02 |
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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.
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. As a leading disadvantage of bankruptcy, the fact that a discharge will not always clear all debt is one that is often overlooked by borrowers. That's right; in some cases, even after a trustee has liquidated your assets and repaid creditors, you could still owe others whose debt was exempt from the bankruptcy discharge. Another big disadvantage of bankruptcy is that you lose property. This could include, but is not limited to, real estate, automobiles, investments, and other personal belongings. In most cases, property also includes your rights to future inheritances. It is almost impossible to withdraw a chapter 7 filing. Once you file for bankruptcy, it is done and you are subjected to all the disadvantages. Your credit score takes a major hit. Bankruptcy will stay in your credit rating for the next seven years. Lenders usually do not entertain previously bankrupt borrowers. Thus, after bankruptcy, it can be difficult for you to get loans. 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. Many filers often overlook the fact that the process of filing for bankruptcy will take a psychological and physical toll. For most people, filing for bankruptcy takes a tremendous toll as the bankruptcy seems to constantly follow them. Bankruptcy can lead to divorce, which can put further strains on your finances. You will also feel like beaten down or defeated. This can lead to strained social life and unhealthy habits like alcoholism. The feelings of losing everything are also prevalent among bankrupts. Due to the mental trauma, it can become extremely difficult for you to manage normal family and social life. There can be serious differences between spouses. The persons will also find it difficult to get along with friends because of feelings of shame and guilt. With the disadvantages of bankruptcy in mind, there are actually some advantages for borrowers with tremendous debt. This includes the mandatory credit counseling course that must be undertaken at least three months prior to the filing. This small requirement can actually help some debtors better manage their finances and find ways to avoid bankruptcy. In cases where bankruptcy is truly used as a last resort and where asset values fall short of debt owed, Chapter 7 might be the better option. However, bankruptcy should only be used as that: a last resort. DISCLAIMER: This article is provided as information only and is not to be taken as financial advice. Chris Blanchet is the author of Help Fix My Finances, an e-book about legitimately taking back control of your personal finances. He also maintains a debt-free blog, How To Repay Debt.com. |