Personal Bankruptcy Questions

Are their drawbacks when declaring bankruptcy?  Of course there are.  I’ve often emphasized in my articles that bankruptcy is a viable option for many people who are struggling to get out of a deep financial mess.  Many people wrongly believe that bankruptcy is the end of the world or should only be used as a very last result in every situation.  As a result, many people look at other options which are not in their best interest and hold off on filing for bankruptcy until the circumstances have deteriorated and much of the damage has already been done.

So my point is that the possibility of declaring bankruptcy should be given adequate consideration before your situation gets worse.  Still, that doesn’t mean that there aren’t negative consequences when you choose this route.  What are the drawbacks of declaring personal bankruptcy?

Well, the first and obvious answer to this is that your credit rating will suffer dramatically for the next several years.  Bankruptcy typically stays on the record for about 10 years, and it may be difficult for you to get a loan at a reasonable rate for some time.  Of course, if your situation is severe enough, your credit rating is probably not a priority in your life right now.  However, you should keep this in mind as it will affect your financial choices down the road.

It doesn’t mean that you won’t have a life after bankruptcy, nor does it mean that you will never qualify for a house or car again.  But these things may be more difficult during the next few years.  This could actually be a good thing because it can force you to develop more discipline in your spending habits and help you rebuild your finances more quickly.

Another drawback of bankruptcy is that this will become a matter of public record, which means that your reputation may be affected.  Although businesses are not supposed to discriminate on this basis, the truth is that it is possible.  Also, your friends may become aware of your situation, especially if you live in a small community that publicizes these kinds of affairs.

Another possibility is that you will have to part with some of your possessions.  It’s true that most people who declare bankruptcy don’t have many assets to speak of, but if you do you may have to surrender them in order to help pay for at least part of your debts.