Bankruptcy is a condition which you choose to declare in a state where unmanageable mounting debts have supposedly usurped your financial status. Once you declare bankruptcy, your debts are managed and settled by the federal laws as per legal norms, offering you likely respite. If you wish to consider filing a case of bankruptcy, you are allowed a couple of choices.
You can choose to file either under chapter 7 and chapter 13. Both have distinctly different purposes to achieve.
The Differences Between Chapter 7 & 13
Chapter 7 happens to be the most common form of bankruptcy where the basic purpose is to provide the bankrupt individual a fresh slate to start on. So, all his previous debts are wiped out, which includes repossessions deficiencies, credit cards, medical bills, law suit related pending amounts, and all other forms of debts that might be plaguing him.
Chapter 13 provides customers with the chance to consolidate debts under federal law, mobilizing a plan to pay up creditors in part, over a period of time. The idea is that here, the consumer earns enough to support himself but not enough to pay off his debts. Whatever remains as a surplus from their living expenses, is consolidated to pay off their debt.
Bankruptcy Seems Like the Ideal Way Out, Right?
Well, hardly! Anyone who has to deal with mounting debts may find it an attractive solution though! It may even seem quick, easy, and most importantly cheap. But, in actuality, the consequences are no less than difficult and painful, and could even prove to be costly in many ways. Therefore, before going the bankruptcy route, it would be essential to consider some of the below mentioned reasons which explain why it may not be a preferable option after all.
1. Your Debts Will Not Be Wiped Out In Entirety!
Although there was a time when bankruptcy seemed to be the answer to all financial woes, the same is hardly true today. And this large scale exploitation has led to stricter federal laws. The new law makes it difficult to qualify for Chapter 7 and start from a clean slate again. There will be a complete evaluation here, and even if some financial means are detected, you will then be forced to opt for Chapter 13. That would leave you in the same amount of debt you had started out with!
2. It Could Mean No Loans For Almost A Decade!
Although your credit scores may not seem all that important for you, that’s only until you opt for a car loan, home loan, or choose to rent some property. Whereas a wonderful and impressive score would elevate your dependability status, dwindling ones would slam many doors shut! You should know that bankruptcy can leave its footprints on your credit scores for the following ten years at least and even beyond. Therefore, you are not likely to qualify for any form of loan during this period.
3. Your Assets May Stand Usurped!
Apart from the fact that bankruptcy filing could end up eating into much of your spare time, it could also lead to complete usurping of assets. For instance, if you choose to file for Chapter 7 bankruptcy, the authorities could seize your home and any other form of equity that you may possess, to help you pay off your debts. So you stand to lose every bit of security that you had. And there is precious little you can do about it once you file.
Even if you may not care what other people think of you, how society or your friends and family members remember you may be important to you at some point in time. And declaring bankruptcy would indeed be associated with a social stigma. You could end up being overwhelmed by feelings of embarrassment and shame. The fear that neighbors and acquaintances may find out some day could keep you under some pressure. As a result, your social standing may continue to weaken over time. Bottling this stuff up is not that healthy either.
5. It Might Hamper Your Job As Well
Although your employer may never admit it, your bankrupt status may have plenty to do about you not obtaining a promotion and so on. Besides, certain career choices could cease to be options for you when bankruptcy is on your resume. These are assignments where you need to deal with other people’s or company’s money. In such cases, organizations may not deem fit to pin any faith on anyone who has bankruptcy in their history. Some companies may even have a policy of checking your credit score before hiring you. So, believe it or not, filing for bankruptcy could in fact affect your career in more ways than one.
Above all else, filing for bankruptcy could bring a plenitude of emotional turbulence stemming from a complete loss of identity and fear of being disassociated from your loved ones. It is never easy to tell the world that you have lost everything or are about to or that you have lenders breathing down your neck because you thought you were a politician and could get away with spending other people’s money on fake energy companies, for instance. It can ruin your status as a responsible person, especially if you have children or are well-known in the neighborhood. Is this horrific experience worth it? Or even risking this situation coming to fruition?
So does that mean that if bankruptcy isn’t a pleasant option, it is indeed the end of the road for you? Well, certainly not! You must face your demons and make the smart decision. Believe it or not, this situation can still grow worse if you do not settle with these financial matters. In fact, before you contemplate declaring bankruptcy, you could strive to achieve some form of financial control with a few chances that are left. There are various debt management programs offered by settlement companies that can choose to be of help. They will not only bail you out from the neck-deep debt situation you are in, but would also educate you on how to avert similar developments in the future. If you are squared away in other parts of your life, you probably do not need too much lecturing and you already know how this happened and how you will not ever let yourself fall this far behind again.