You’ve likely heard a lot of negative and positive things about bankruptcy and the process involved. Bankruptcy is a complex system and legal framework that allows individuals or businesses to refinance their debts or liquidate their assets efficiently in hopes of bettering their financial situations.
Thousands of Americans every year are forced into filing for bankruptcy due to their financial hardships and apparent lack of other options. Due to its popularity, many people may be wondering why bankruptcy is bad. Although declaring does have its benefits, there are also several negative consequences that should be considered before filing. Keep reading to learn more about why bankruptcy is bad.
Filing for Chapter 13 bankruptcy—otherwise referred to as “reorganization—allows you to present a realistic payment plan to your creditors which may be approved by a licensed bankruptcy judge. The judge will help you and your creditors reach an agreement quickly and efficiently to expedite the process.
During this process, you are likely to lose assets such as your home or car unless you specifically “reaffirm” the loans associated with them. If you show that you are willing to repay these debts, you may be allowed to keep the assets; although, you won’t have much control over the process in that case.
With that said—even if you do get to keep your home or car, you’ll likely end up losing the majority of your liquid assets to help pay off your debts. Your credit score will also be negatively impacted by sometimes 200 points or more. These drawbacks can make rebuilding after bankruptcy a very difficult task. Because of the added difficulties, you’re likely to end up back in debt within a couple of years.
As a more drastic version, filing for Chapter 7 bankruptcy means that you will definitely lose the majority of your assets. You may be permitted to keep some basic assets for comfort, depending on the laws in your state. This process is heavily discouraged and should only be taken if you are sure that there are no other options to consider.
Alternatives to Bankruptcy
Now that you’ve learned why bankruptcy is bad, it should be an easy decision to consider alternative options before filing. In fact, sometimes simply creating and following a strict budget could fix your issues better than any other debt relief options might. This budget should cut out any unnecessary expenses and aim to increase your income.
Regardless of what type of debt relief you pursue—whether that be credit counseling, debt consolidation, debt settlement, or any other, the process will require a lot of dedication and patience. By sticking to it and persevering, however, you can get out of debt and avoid the negative consequences of why bankruptcy is bad.
If you would like to further discuss why bankruptcy is bad, Strategic Debt Relief can offer expert advice regarding your situation. Fill out our short application online and get an immediate response, or call us at 877-297-4477 for a free consultation today.