Bankruptcy indeed has many advantages, but applying for bankruptcy has its drawbacks, which hurt your lifestyle and financial situation in the long term.
As bankruptcy has quite a number of disadvantages, you should always consider whether you should apply for bankruptcy, as bankruptcy might not be the right thing for you to do. Of course, It cannot be specifically said whether bankruptcy is right or wrong; it depends on what your goals are that you want to achieve, e.g., if your only goal is to be debt-free as soon as possible, then bankruptcy might be the perfect option for you. Still, if you don’t want any hurdles in getting credits in the future, bankruptcy might not be the best fit for you. Also, your employer’s awareness of your bankruptcy might be another downside.
So, here are some of the disadvantages of bankruptcy that will help you decide whether or not you should file for it:
- If you fail to exempt all your real estate or personal properties under the bankruptcy exemption, the court has the right to seize some of your personal property and auction them to pay your creditors.
- Your bankruptcy will be mentioned in your credit reports for seven years or more.
- Most credit card companies automatically cancel your credit card once you are declared bankrupt, and your bankruptcy also becomes a hurdle when you apply for a new credit card or line of credit.
- As bankruptcy is a public filing, a recently declared bankrupt may not be able to obtain any IVA mortgage, loan, or credit for several years, as it will raise a red flag to the banks.
- All of the tax refunds you were to receive from the federal, state, or local governments may be endangered or denied based on your bankruptcy.
- If you are a job seeker or want to purchase or rent a house, several employers or landlords may not feel comfortable considering a person recently declared bankrupt.
- If you are part of a corporation, you may not be included in the list of potential directors for the limited liability companies.
- After you are declared bankrupt, most of the debts like several types of tax debts, liens, support orders (including alimony and child support), student loans, federal and local taxes, fines, etc., may not wear off, and you will still be required to deal with all those debts.
- When you file for chapter 7 bankruptcy, you will be required to wait at least eight years before you can file for bankruptcy once again. Therefore, if more financial difficulties march towards you in the future, you won’t be able to tackle them with bankruptcy, at least for the coming eight years.
- Your hunt for employment will be severely affected in a negative way, as bankruptcy is a public record and will be visible to your potential employers.
- If you possess any joint accounts, creditors may demand the non-bankrupt person pay on behalf of you or any of the cosigners related to those accounts.
- Apart from all the financial effects, bankruptcy also severely affects your mental health for the people who are conscious about their image in the market.
Conclusion
While the last point might not sound like that big of a disadvantage, bankruptcies often negatively impact your personal and professional life. However, the advantages of bankruptcy are way more beneficial than the disadvantages.