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What are the Risks of Bankruptcy?
Making the decision to declare bankruptcy is not one to be taken lightly. While it can improve your quality of life in the short-term, it also comes with certain risks and consequences that can change your future. Bankruptcy has an effect on your future credit, your financial reputation, and your personal perception, which is why it should be considered a final resort when facing a financial crisis.
If you are considering declaring bankruptcy, you are definitely not alone. Millions of Americans live with the burden of debt, and many of those are just a step away from bankruptcy. While we understand feeling like bankruptcy is the only option for you, take the substantial risks into consideration before making the final decision.
Bankruptcy is not a quick, easy solution to overwhelming debt. As soon as you file, it becomes part of public record. The process can take years to complete, and you may be forced to sell many of your possessions. Although it isn’t required, having legal representation can increase your chances of successfully navigating the process. (That’s another fee.)
Contrary to popular belief, bankruptcy does not clear all of your debts. Depending on the type of bankruptcy you choose to file, there are still many debts you must pay. If filing for Chapter 7, you will still be responsible for all mortgages, car payments, student loans and any unpaid child support. With this type of bankruptcy, you also risk losing all of your assets. When filing for Chapter 13, the repayment plan can take up to five years to pay off.
Not only does bankruptcy have a drastic and negative effect on your credit score, it will also remain on your credit report for up to 10 years after filing. Some creditors could refuse to work with you, which can affect your ability to purchase a home or a car. You could run into issues when renting a home or successfully completing background checks for jobs as well. Also, you will not only lose most of your credit cards at the time of filing, but obtaining and using new ones in the future will become incredibly difficult. If you do acquire new credit lines, the interest rates will be much higher in comparison.
Again, even in the worst financial times, bankruptcy should be your last option. There are many other debt relief solutions, like Credit Counseling, available to consider before you file for bankruptcy. Credit counseling organizations, like us, offer debt management plans that incorporate many of bankruptcy’s positive aspects without the unpleasant drawbacks. When you enroll in a credit counseling program, you will receive personalized service from an experienced team that negotiates interest rate reductions and more affordable debt payments on your behalf.
If you have further questions about filing for bankruptcy, visit our bankruptcy page detailing the process for each type. Remember, our certified credit counselors are always on hand to offer helpful assistance, and you can utilize our debt estimate form to find out how much you can save.