Filing for bankruptcy can be a difficult decision to make, but it can also be an effective way to get a fresh start on your financial life. While there are many advantages to filing for bankruptcy, such as stopping collection calls and keeping your property, there are also some drawbacks that you should consider before making the decision. The most obvious downside of filing for bankruptcy is the damage it can do to your credit rating. It can take up to five years for a score of 680 to be fully recovered from a bankruptcy filing, and you may have difficulty acquiring loans in the future.
Auto insurance companies use an industry-specific credit report based on your credit history, so if you need to get car insurance after filing for bankruptcy, your rates are likely to be affected. Another disadvantage of filing for bankruptcy is that it is a public record. Any member of the public can visit the bankruptcy court clerk and request to see a person's file. This means that potential employers or landlords may be able to access this information.
Additionally, you may have to postpone major purchases such as buying a home or going back to school due to the difficulty of applying for credit after filing for bankruptcy. You may also have to complete a “resource test” in order to qualify for Chapter 7 bankruptcy protection, and if you don't qualify, you may have to file for Chapter 11 bankruptcy instead. This type of bankruptcy requires more paperwork and is more expensive than Chapter 7.Additionally, if you file for Chapter 13 bankruptcy, you may not be able to get new credit cards as quickly as those who file for Chapter 7 because you are using a portion of your income to pay off old debts. Overall, filing for bankruptcy can be an effective way to deal with back taxes and other debts, but it is important to consider all of the potential drawbacks before making the decision.
Bankruptcy can move you in a positive direction, but it is not without its disadvantages. It is important to weigh all of the pros and cons before making this important decision.
