Bankruptcy is a temporary situation that arises in the face of financial difficulties. There are two options for bankruptcy: Chapter 7 or Chapter 13 bankruptcy. In Chapter 7 bankruptcy, companies and individuals can liquidate their assets and pay off the debts. In chapter 13 bankruptcy, they can restructure their finances and pay off the debts.
Filing for bankruptcy can put the debtor at a great disadvantage; sadly, most people do not know about this. There are some serious long-term consequences that people who file for bankruptcy must know about. Here are some of them:
A debtor cannot file for bankruptcy for the next 8 years
Once a debtor declares his bankrupt, the process starts. Since he cannot file another one for 8 years, his financial advisers would suggest alternatives to the bankruptcy situation. If the debtor’s present debt situation is temporary and if he feels that his situation might reverse in the future, then he can go ahead with the bankruptcy.
Bankruptcy remains in the credit report
The fact that the debtor has filed for bankruptcy would remain in his credit report like a sore thumb for 10 years. However, that doesn’t mean the debtor cannot apply for a mortgage in a couple of years. He can also improve his credit card rating over time. Even if Bankruptcy 7 takes just 6 months to get resolved, the effects would remain.
Filing for bankruptcy doesn’t come cheap
Filing for bankruptcy doesn’t come cheap, in terms of money. Hiring a bankruptcy lawyer would cost a lot of money; the rates depend on the area and location. It would also take about 3-5 years for the whole thing to settle down.
Missed payments can turn to be devastating
In case you have missed payments in Chapter 13 bankruptcy, then it might get converted to Chapter 7 bankruptcy liquidation. This could be disastrous because all non-exempt property (bank accounts, family heirlooms, vacation houses, investments and so on) would be assessed, sent and distributed among the debtors.
Bankruptcy report remains a public report
Though bankruptcy is a legal issue, information about the debtor’s bankruptcy would remain a public report that anyone, especially, businesses, employers, banks, clients, etc. can access. The name and personal details would be there for everyone to see.
Filing for bankruptcy would deter many organizations from hiring the debtor for senior positions. Hence, it must always be seen as a last resort. If any other arrangements can be made, then engage them first.