In the case that you are successful in filing for bankruptcy, there are many long-term impacts that will affect your life. It is important you carefully consider these impacts before taking this very drastic step.
Long Term Impacts:
- The loss of any credit cards with outstanding balances, and others may choose to close your accounts.
- It will become close to impossible to secure a home loan or other large credit line (except possibly at the kind of inflated interest rates that probably led, in part, to your current situation).
- You may not get rid of all of your debt since not all debts are covered by a bankruptcy filing. Student loans, back taxes within the past three years, and select other debts are generally exempt from bankruptcy protection.
- Your bankruptcy situation will continue for 10 years, during which time you will need to maintain a near perfect credit record in order to rid your reputation of being a risk, and work your way back to a useful level of trust.
- Potential creditors will regard any bankruptcy as the most negative criterion on any credit report – even beyond a low FICO score.
- You may be required to forfeit assets such as a boat, expensive jewelry, secondary residence or property, and other items, depending upon when they were purchased. Most states make an exception for both your primary residence and your vehicle.
- The bankruptcy procedure itself is not free. Courts have their required fees, and your attorney (if you elect to hire one) will charge a fee as well. In an already desperate situation, those expenses can be very overwhelming.
There is also an upside:
- You will obtain relief from debt collection efforts (provided they receive notification).
- Your wages can not be garnished and any foreclosure action will be stopped.
- By taking action sooner rather than later, you will start to build a new credit history that can be better than the past one.
- Since you won’t have access to new credit cards, this can actually be an advantage. There are some people who simply should not have access to easy credit, until and unless they can find a way to change their habits.
- It can serve as a huge wakeup call to change any bad money management habits.
For some, it’s necessary to hit rock bottom before they find the inner strength to make large, positive, long-term changes. But, hitting rocks is painful. Consider carefully before you take the plunge.