Why You Should Avoid Bankruptcy
Bankruptcy tends to appear to be the “quick fix” solution that looks good now but having bankruptcy on your credit will burden you with 7-10 years of financial hardships. The years after declaring Chapter 7 or 10 protection can often be more stressful and frustrating than dealing with what seems to be an insurmountable amount of debt prior to making the life changing decision.
Although it does serve a purpose to those who truly are in too deep of a hole and have no other way out, it unfortunately is used too often without the real ramifications taken into consideration. If at any point you may be struggling with large amounts of debt and contemplating bankruptcy be sure to take a look at these reminders of why this decision should be a last resort.
- Credit Destroyed – Upon filing for bankruptcy you can expect a plunge in your FICO credit score. How big of a drop? A precise amount is nearly impossible to predict but it is directly correlated with the number of accounts one has. Regardless of the amount a score has dropped, it will flag you as an extreme risk to future creditors and make it nearly impossible to apply for credit altogether.
- Expensive Borrowing – After filing for bankruptcy and being labeled as “high risk,” it will be extremely difficult to procure financing of any kind from a home mortgage to auto insurance as creditors will be leery of lending to such a high risk individual. If in the event you are offered credit it will be at exorbitant interest rates and a required large sum of money up front, often in excess of 50%. Normally, the sky high rates are in excess of what the finance product is actually worth which, over time, will end up costing lots of money and potentially put you back into the situation which originally brought upon bankruptcy.
- Lost Job Opportunities – According to the Human Society for Resource Management, nearly 47% of employers conduct a credit check before hiring. It is also important to note that regardless of your prior accomplishments in academics and/or at another job, bankruptcy will overshadow. Ultimately, bankruptcy will make it extremely difficult to find a great job.
- Cost – Bankruptcy filing and attorney’s fees can be quite steep. In addition, you must attend credit counseling for 6 months prior to filing at your own expense. You can expect to spend thousands to see this process through.
What to Do Before Making the Decision to File
Before you make the decision to file for bankruptcy it is smart to consult a financial professional to assess your current situation and possibly create a strategy to solve the problem. Selling assets and downsizing in other areas such as your car or home can often provide enough funds to pay creditors and avoid having to file. Contacting a credit counseling agency can also be of great benefit as they have the ability to negotiate with creditors to consolidate debt and drastically reduce interest rates as long as you can commit to a specific monthly payment.
Final Thought
Ultimately, you will have to decide if filing for bankruptcy is worth living with the negative consequences for many years to come. Bankruptcy should be taken very seriously and only utilized if all other options have been fully exhausted. Take time to research and judge whether or not bankruptcy is the right option for you as a last resort.