While bankruptcy can offer you a fresh start and give you the breathing room you need to get back on your feet, it also comes with some serious consequences. One of the most obvious is the impact on your credit. Bankruptcy stays on your credit report for up to a decade, and it can make it difficult for you to get loans or credit cards, especially those with favorable interest rates.
There are many ways to deal with debt, such as filing for bankruptcy. It’s vital to explore your options, including alternative lenders, before you decide to take this step. Whether you’re a small business owner who has maxed out all of your borrowing limits or an individual who is so deep in debt that you’ve run out of money, it’s important to talk with an experienced bankruptcy attorney such as Cain & Herren before you take this serious step. He or she can explain the advantages and disadvantages of bankruptcy, as well as your alternatives to this option. You might be surprised at the number of options available to you.
Another major consequence is that you may have to surrender some of your assets in order to pay creditors. Depending on the type of bankruptcy you file for (Chapter 7 wipes out most unsecured debt, while Chapter 13 requires some repayment), you might have to forfeit property such as your car, home or jewelry. Some states have exemptions for certain property, so you’ll have to check your state’s laws to see what you can keep.
You may also lose some of your future earnings. Whether or not this happens depends on the type of bankruptcy you file for, and how much you owe in taxes and student loan debt, among other things. Some people who file for bankruptcy do so because the cost of servicing their debt (making payments) exceeds the income they generate each month. If you’re at the point where you can’t make the monthly minimums on your credit card bills, mortgage, auto loan or other debts, a fresh start through bankruptcy could be the right choice for you.
The last big downside is the psychological impact of declaring bankruptcy. It can leave you with a stigma and can even affect your relationships with family and friends. The good news is that you can rebuild your financial life after bankruptcy, but it will take time and vigilance. One way to help you re-establish your credit is by using a secured credit card, which allows you to make deposits with the issuer that can be used as a credit limit when you borrow.
While there are negative impacts to bankruptcy, it is often the best option when you’re drowning in debt and don’t have a realistic way to pay off what you owe. However, before you consider filing for bankruptcy, it’s important to understand what will happen in the process and how it might affect your finances in the long term.
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