Implications of Declaring Bankruptcy to Clear Debts

Implications of Declaring Bankruptcy to Clear Debts

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Are you at a dead end with paying your debts? Are your creditors always on your neck with unending telephone calls and threatening emails? Maybe then it’s time to consider declaring bankruptcy, though this should be thoroughly thought through and should only be considered as the last option due to the repercussions involved.

There are pros and cons involved in declaring bankruptcy to clear your debts.

Advantages of declaring bankruptcy

1. It clears all your debts, creditors can finally get off your back, and you get to keep all basic household items.

2. After clearing all your debts through bankruptcy declaration, you have a chance to get back on your feet after a short period of, say one year, and you can start creating your credit record again.

Disadvantages of declaring bankruptcy

1. It is very embarrassing as it becomes public information. It is a disgrace and it tarnishes your good name as you would be needed to inform all your creditors, landlord and business partners if any.

2. You may end up losing properties acquired through inheritance, real estate or through insurance settlements. Your pensions could also be at risk. You cannot acquire any property like a house or vehicles.

3. Bankruptcy tarnishes your credit report for a period of time within which you cannot access any loans (this also includes mortgage).

4. Any business(s) will be closed down and employees let go. All assets on hire, such as inventory, vehicles, office space, and machinery will be immediately confiscated and possibly returned to the hires.

5. You lose your credit cards and your bank accounts are closed or made redundant.

6. You reduce the chances of securing formal employment and you may even lose business opportunities like lenders.

7. You face rejection from members of society and even associations that you were previously a member. You are termed as worthless since you can’t pay your debts.

8. Bankruptcy will also involve a long interrogatory session with the judge and trustee as you try to convince them to declare you bankrupt.

9. Unfortunately, bankruptcy does not cater for your student loan and back taxes until a period of three years.

10. Bankruptcy is not scrapped off from your credit report until after a couple of year, usually 10 years.

In conclusion, it is thus highly discouraged to declare bankruptcy as it affects your image and reputation and even affects your credit worthiness report. Those who have been declared bankrupt often have a difficult time rebuilding their credit worthiness and securing loans.

Effective financial planning, debt management, income maximization, loans combination and developing a manageable loan repayment plan are some of the best strategies to avoid declaring bankruptcy.

However, declaring bankruptcy can be used as a last resort when you are buried deep in debt.

Image credit: nyc chapter 13 bankruptcy lawyer 1, on Flickr

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