Consequences of Filing for Bankruptcy: What Nobody Told You
If you’re struggling with debt and thinking about filing for bankruptcy, explore all of your options before making a decision. We all know someone, who knows someone else, who filed for bankruptcy a few years ago and just bought a new car. On the surface, it sounds like such an easy solution. Hey, your friend of a friend seemed to come out of the process unscathed, right?
The truth is that the friend of your friend is probably not going to tell you about how bankruptcy affected their credit or future buying power. That doesn’t sound quite as glamorous as their story of buying a new car. That’s where I come into the picture. Bankruptcy is a serious legal decision. While it is certainly possible to recover from a bankruptcy, it is important to know the consequences before you walk down that long road.
Let’s look at a few of the key issues.
Your Credit Score - The obvious negative to filing for bankruptcy is the negative impact it has on your credit score. How much your credit score is affected depends on a variety of factors, which can make it difficult to pinpoint how much your score will drop due to filing. However, I can say that bankruptcy is one of the most negative factors you can have on your credit report. The higher your score prior to filing, the more it will drop after you’ve filed. Having a low credit score will make it much more difficult to get credit. And, when you can get credit, it will result in higher interest rates. That means you will pay more money for the loan.
Your Credit Report - After you file for Chapter 7 or Chapter 13 bankruptcy, it will be reflected on your credit report for up to 10 years. Experian, one of the credit reporting bureaus, offers helpful information on how a bankruptcy impacts your credit report.
Your Future Employment - You should also be aware that most employers pull credit reports of each job applicant, and some employers frown upon bankruptcy. While this is not the case for all companies, some private employers may be less likely to hire a person with a bankruptcy on their record.
Your Bank Account - As ironic as it sounds, it is actually fairly expensive to file for bankruptcy. Attorney fees vary depending on the market where you live, the complexity of your case and your attorney’s level of experience. However, it is not unusual to pay fees between $1,250 and $3,500 in addition to the court filing fees.
Final Analysis - As you can see, filing for bankruptcy is a major financial decision. Although it is beneficial for some individuals, make sure it's the right choice for you. Consult an experienced bankruptcy attorney, who can help you understand how bankruptcy may impact your specific situation.
Disclaimer: This article is not to be used for legal advice. Speak with an attorney if you have specific questions about your situation.