The Drawbacks of Filing Bankruptcy

Due to poor economic conditions, many people have found themselves largely in debt. Since getting out of debt can be very difficult to do, many people consider filing for bankruptcy to get out of debt. While filing for bankruptcy could help some people, there are many drawbacks that come with filing for bankruptcy and may make it such that finding a debt relief alternative may make more sense.

 

The first drawback of filing bankruptcy is that filing for bankruptcy will ruin your credit. When you file for bankruptcy, you will have a large negative mark left on your credit report for up to 10 years. During this time period, your credit score will be hurt so badly that you will most likely not be able to receive a loan or any other form of credit unless you are willing to accept an extremely high interest rate. After the initial 10 year period, you will need to begin to rebuild you’re a good credit score, which could easily take another 5 to 10 years. Therefore, it could be up to 20 years before you will qualify for many low interest loans.

The second drawback of filing for bankruptcy is that it will not relieve you of all of your debt. Bankruptcy will typically relieve a person of their unsecured debt, such as credit cards and personal loans. Other forms of debt, such as a mortgage or student loan, will not be removed from a person’s credit report and you will have to continue to make payments on those loans. For many people, mortgage debt and student loan debt are the two largest components of their overall debt, so filing for bankruptcy will barely even help them.

The third drawback of filing for bankruptcy is that it will be quite expensive to do so. When filing for bankruptcy, your creditors will be given the opportunity to liquidate many of your assets. This means that you will lose any liquid savings you have, lose any stock or mutual fund investments, or may even have some other assets sold at auction. Furthermore, filing for bankruptcy is a very time consuming and confusing process. Because of this, it is almost a necessity to hire an attorney to handle the work for you. Bankruptcy attorneys often cost a few thousand dollars, and will normally require upfront payment before they will begin working on your case.

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