Why Bankruptcy Is Not The Simple Answer To Debt

Years ago, filing bankruptcy carried a social stigma that many people avoided like the plague. It more recent times, bankruptcy-sign-2people began to figure that bankruptcy is the easy way out of their debts. However, the reality of bankruptcy is highly disruptive not only to your present financial situation but also for your future one. Also, bankruptcy courts are no longer as lenient as they may have once been. Simply filing for bankruptcy does not necessarily mean it will be granted and even if it is, not all of your debts could be dismissed.

Should you be fighting off debts and collectors of debts, you might feel that bankruptcy will bring quick relief. In actuality, bankruptcy is not the answer and it certainly is not free. It is a time-intensive process that involves high fees and attorneys and problems for your future financial situation. Bankruptcy can have long lasting effects including:

Impossibility of Unsecured Loans
If you are in need of a loan or want a new credit card, filing bankruptcy can certainly dash your hope of ever securing one. Credit card companies, bank lenders, and mortgage companies will likely deny any application connected to a bankruptcy. These lenders are now taking serious precautions at avoiding all risks thanks to the recent credit crisis. Your financial history will be closely look at to determine creditworthiness and a bankruptcy is a big red flag to lenders.

Secured Loans Will Be Very Expensive
If you can’t get an unsecured loan or traditional credit card, your other option is credit of the secured variety. If you take the secured route, your credit card will require a deposit in cash before you can use it. If you are seeking a secured loan, you will likely get hit with interest rates that are considerably higher had you not had a previous bankruptcy.

Your Retirement May Be At Risk
There are some retirement accounts that are protected during a bankruptcy such as your 401k account. You are also protected for up to a million dollars in individual retirement assents. However, other retirement investments can be used in the bankruptcy, such as IRA accounts.

You Likely Lose Other Bankruptcy Options
If you file bankruptcy without too much thought behind it, you run the risk of not having the option should you really need it. New legislation has made filing for bankruptcy more difficult in that some individuals will not qualify for Chapter 7 bankruptcy. There are also growing lists of debts that can not be eliminated in a bankruptcy. Repayment plans can be difficult to manage than in the past. If you have previously filed for bankruptcy, you may not be able to do so in times of serious financial distress.

More Time Investments
Filing for bankruptcy doesn’t just involve some paperwork. There is court time, attorney time, and the addition of six months worth of credit counseling that is required before even filing. Many individuals will also be required to take financial management class after a bankruptcy has been filed in order to qualify for bankruptcy. It can be a long-term process that many people can not afford financially or time-wise due to work and family commitments.


  1. Mostly great advice but in a chapter 7 bankruptcy, there are only two brief credit counseling classes required, and both can be done online. Bankruptcy is not a decision to be taken lightly but for some, it is the only way to a fresh start. Anyone considering bankruptcy needs to do a lot of homework first!

    Good luck to all,


Speak Your Mind