In this article, we’ll answer the complicated question: Why is any Form of Bankruptcy Most Often Considered the Last Resort?
When you undergo a financial crisis, you should look for options to overcome it. One such option is filing a case of bankruptcy. Besides bankruptcy, there are other options which must consider as soon as possible.
Often bankruptcy is the ultimate step that one takes to overcome dues. And you must go through careful consideration before taking this step. There are often counseling sessions available before you go to file for bankruptcy to understand if that’s the best option for you, or are there any other legal actions available. In this article, we will further discuss the negative impact of bankruptcy.
Why is any Form of Bankruptcy Most Often Considered the Last Resort?
At times of crisis, bankruptcy can help you regain financial stability. You must look through Chapter 7, Chapter 11, and Chapter 13 bankruptcy and understand the terms and conditions that suit your best interest. But when should you file for bankruptcy?
When your loan amount is above and beyond your total income and assets, that’s when you know you need financial advice. But before taking the step, we would want to advise other workarounds like negotiating payment plans with creditors.
After the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, filing a bankruptcy case has become tedious with many paperwork, counseling to manage finance, and many limitations. There are many, not just financial but also societal impacts of Bankruptcy, which we will list down.
Effects of Bankruptcy as the last resort
When you have chosen to file a case of bankruptcy, let us list some of the negative impacts it has.
1. Credit Score
Once you have filed a case of bankruptcy, it remains visible on your credit report for almost ten years. However, it may not have much impact if you continuously have a poor credit score.
2. Information made Public
All the details of your property, including your assets, will be filed in the documents of your bankruptcy case. You will not be given an exception, and these are public records. It is mandatory to do so under oath. The major credit bureaus and creditors and informed about your bankruptcy the moment you file a case.
3. Certain Limitations
Even though bankruptcy is a model that gives you another chance to bring back financial stability, it gives you the option to hold back some of your assets, but you will have to let go of a few. But debts like criminal fines, student loans, child support, and some taxes cannot be discharged.
Furthermore, if you take a loan during your bankruptcy case is still pending, it cannot be included. If you are not covered under the insurance of an event that may cause significant financial loss, you will not be able to file another bankruptcy case.
4. Years to recover
Most bankruptcy cases take almost seven to ten years to recover. Besides being discharged, there are a few loans that need payment to creditor irrespective. And there are extra expenses like hiring a good lawyer, funding the trustee fees, and running the case in court.
And you will also not be able to file another lawsuit of bankruptcy anytime soon. For that, you will have to wait around 4-8 years, depending on the severity of the case. Together it is a lot in such challenging conditions.
5. Loan Approvals
Once you come under the radar of bankruptcy, you automatically become a high-risk customer. These are very few chances of loan approvals, and even if you get a loan, it will have a very high interest incurred. But over time, you will have to pay that extra interest amount to regain trust and rebuild your credit score.
What does filing for bankruptcy do?
When a person is unable to pay back that loan that he had taken, and there is no other way possible, he could shortly file for a case of bankruptcy. Although there are multiple disadvantages listed above, there are a few temporary relaxations also for filing bankruptcy.
For instance, you will get an immediate stay order on all the debts to be collected. There are a few dischargeable debts, too, which can be relaxed, for instance, medical bills, credit card loans, utility bills, and other personal loans.
Under a few sections in both Chapter 7 and Chapter 13, some exemptions allow you to keep a few of your assets and properties. There are a few cases where the credit scores take a dip, but there is no room to be alarmed. Once the case is discharged, one can work towards building a better credit score. So, filing a lawsuit of bankruptcy has more advantages than one.
Now that we have come across all the advantages and disadvantages of having filed a case in bankruptcy, we are sure you will make the right choice for yourself. All we can say is to go through each Chapter’s terms and conditions while filing the case.
There can be many loopholes involved in such debt cases, so make sure you have all the correct details and rules.
For your reference, here is a video link that explains this topic in more detail – “Why is any Form of Bankruptcy Most Often Considered the Last Resort?“