Most people overestimate the harm from filing bankruptcy and underestimate the good that comes of filing it. This website and lots of others have long lists of the benefits of filing, but what about the bad things that can happen?
That being said, bankruptcy isn’t always the answer. There are some disadvantages that you need to consider before you file for bankruptcy.
Here are some of the downsides of filing for bankruptcy.
Some of your debts will follow you. Though you may file for Chapter 7 bankruptcy or Chapter 13 bankruptcy to get rid of all of your debt so that you can start over, some debts will follow you. This includes any student loans, tax debt, and much more. You will still be required to pay up on your child support and any alimony that you are required to pay.
You aren’t going to be able to use your credit cards anymore. Many people rely on credit cards to get through. They use them when they have tight weeks, which is often how they get in trouble.
However, there are many places that require credit cards. You may not be able to stay in hotels, rent a car, or do other fun things that require you to have a credit card.
It is going to follow you around for ten years. Your credit report is going to show your bankruptcy for the next ten years, affecting your credit for that long. Chapter 7 stays on the report for 10 years, BUT, most people see a better credit score about 6-12 months after filing than they had before filing. This is because bankruptcy stops most negative remarks on credit reports and allows you to make payments on time for things like mortgages and student loans. On-time payments without negative reporting is the key to having a good credit score. Bankruptcy makes your financial situation easier to manage by discharging the bad debts, and leaving the good debts such as a mortgage or car loan. You then continue to pay the good debts, and your credit score will increase.
You won’t be able to get any loans for a while. Once you have a bankruptcy on your credit score, you aren’t going to be able to get a good car loan for about 6 months. You can get car loans only 1 day after filing bankruptcy, but they will have a bad interest rate. You also won’t be able to buy a home until 2 years have passed from the discharge.
Because all of the credit cards, medical bills, collections and charge offs are gone, people usually find that they get a good interest rate if they wait for a little while after bankruptcy before taking out big loans. It’s best to continue using an older car and renting for a year or two.
It requires more time than simply typing your social security number into a website and turning things over to the courts. The laws are set up so that someone who is looking to get their debts discharged must prove to the court that it makes sense. The lawyer helps with this by telling the story and making all of the documents, but they lawyer needs things like paystubs, bank statements, and tax returns to tell this story. Privacy rules mean that there is no way for the attorney to get this stuff automatically from your employer or bank. Sometimes we can get IRS information, but they are very careful about it.
There is also a hearing to attend, and 2 courses that cannot be skipped. The hearing is only 5-10 minutes for most, and the courses take 1-2 hours each and can be done online anytime, but it is still extra work. Most people who file for bankruptcy in Minnesota have jobs and a family, and it is hard to take this extra time.
That being said, post-bankruptcy financial management is usually easier than dealing with your debts that have gotten out of control.
You can’t file for bankruptcy again for many years. If you file Chapter 7, you won’t be able to do that again for the next eight years. If you file for Chapter 13, you won’t be able to do that again for two years.
You will also have to wait if you decide to file the other chapter. If you filed a Chapter 7, you have to wait four years before you can file for a Chapter 13. If you filed for Chapter 13, you have to wait six years before you can file for a Chapter 7.
Bankruptcy can be a fresh start when you feel like there is no way you can get out of your debt. However, the truth is that it isn’t always the right answer. It doesn’t wipe out all of your debts. You are still going to have to pay certain loans so it might not help you out much at all.
You also need to realize that bankruptcy is going to be on your credit report for the next ten years so you will struggle to get loans. If you do qualify, you are going to find yourself paying more than you should have to. You are going to have higher interest rates.
You also need to realize that you aren’t going to be able to file again for many years. If you are at the beginning of a long road of financial troubles, you may want to hold off for a while.
Contact us for all of your legal needs. We will help you through this difficult time.