Category: 

What are the Consequences of Filing for Bankruptcy?

Filing for bankruptcy often means creating more bad credit history.
Difficulty obtaining credit is one of the biggest consequences of filing for bankruptcy.
Bankruptcy may be an option for people who cannot pay their debts.
Article Details
  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 15 November 2014
  • Copyright Protected:
    2003-2014
    Conjecture Corporation
  • Print this Article
External Resources
Free Widgets for your Site/Blog
The US Post Office uses a mail boat to deliver to other ships on the Detroit River, and it has its own zip code: 48222.  more...

November 27 ,  1978 :  Harvey Milk and San Francisco Mayor George Moscone were murdered.  more...

Individuals and businesses sometimes reach a level of financial difficulty that a decision is made to look into the possibility of filing for bankruptcy. Indeed, there are situations where choosing bankruptcy is the most logical course. At the same time, bankruptcy filing should never been seen as an easy way to get out from under a mountain of financial obligations. There are consequences to filing for bankruptcy that should be carefully weighed against the benefits. Here are a few examples.

First, a bankruptcy can make it very difficult to obtain credit in the future. Many people are under the impression that it is easy to obtain credit just after filing a Chapter 7 bankruptcy. Up to a point, there is some truth in this, as high risk credit card providers will often extend credit lines to people who have filed bankruptcy recently. However, it is common in many cases to limit credit to individuals and businesses for major purchases for a period of up to two years after the bankruptcy is considered fully discharged. For example, qualifying for a home loan will not be possible until two years after the Chapter 7 is discharged. If the individual filed a Chapter 13, all debts associated with the bankruptcy must be paid in full, two years must have passed since the bankruptcy was discharged, and the credit file in the interim must be free of any new negative entries.

Ad

Filing for bankruptcy can also impact future career opportunities. Often, a person who has gone through bankruptcy filing in the recent past is not eligible for consideration as a director in a business. It may also be impossible to hold certain offices in local organizations that would be helpful in furthering the career. The simple act of filing for bankruptcy may diminish the level of confidence that current customers have in the individual or company, and can also put off potential clients who prefer to go with an entity that is more financially stable.

Depending on the circumstances, filing for bankruptcy will also mean losing personal assets. This can include property, the home, cars, or anything else of value that may be seized, sold, and used to partially satisfy the amount of outstanding debt. While this is not always the case, it is possible for creditors to petition the court to take this type of action.

At the very least, filing for bankruptcy means creating more bad credit history. The action will impact a credit score for at least six years and nine months, and possibly up to ten years, no matter how financially responsible the individual becomes after the filing takes place. At best, this means settling for credit that carries an outrageous interest rate. In the worst case scenario, it means an inability to obtain any type of financing for a home or car.

Filing for bankruptcy should always be the last resort. If any other arrangements can be made to pay off outstanding debt, they should be considered before engaging in any type of bankruptcy filing. While other methods may also damage credit rating, they also can help to begin the process of reversing a negative rating and restore a healthy credit score over time.

Ad

More from Wisegeek

You might also Like

Discuss this Article

anon359824
Post 45

When I filed chapter 7 bankruptcy, I was not working. Now that I have filed chapter 7, should I wait to go back to work 90 days after filing to avoid paying any creditors back?

jessiwan
Post 44

O.K., this might sound like a retarded question: what happens to all of one's debts when he files for bankruptcy? So many people here keep saying, "X happened to me, put me in huge debts, so I had to declare bankruptcy". It makes me think that declaring bankruptcy magically makes all of your debts go away.

Needless to say, I have never filed bankruptcy before. Ever.

anon354996
Post 42

Filing bankruptcy has been called the "nuclear option" when it comes to personal finances, because it creates dramatic and far-reaching effects. However, while the word "bankruptcy" still carries a stigma in some circles, in many cases it is the right financial move. If you're overwhelmed by debt and have no feasible option to get out, bankruptcy might actually be the right answer for you.

Anatomy
Post 41

I'm going to see a bankruptcy attorney tomorrow. I took out some private loans and cannot pay them back. After four years of off and on employment and getting divorced because of this, where is people's pride?

My pride went out the window when the collection agency started harassing my 84 year grandma. I tried to work with them, but now they are harassing my soon to be ex-husband who cannot lose his license (he is a CPA).

I had this debt before we were married and he knew about it. I went from a $70k job to 0. I paid off all my other bills (over $20K) and almost paid off a car and am still making payments on a house that I'll never get full price (my house is being rented).

I'm living off of my retirement and will now have to pay to move. Do I feel bad? Yes, but I should have done this last year, but pride got in the way.

anon335046
Post 37

Bankruptcy is a word that has had a taboo attached to it for decades now and somehow it's still around today as a viable, legitimate means to help people regain their financial freedom. The truth is, we have no idea what specific adversities people face when they make the decision to go bankrupt, but if it's an avenue that's going to help them than I say so be it.

It is absolutely a business decision and like all other business dealings there is the always the potential for abuse. Great job here, thanks!

anon332121
Post 35

My husband got sick and died young. I had to leave my job as an executive assistant because the doctors told me I had to stay home with to take care of him because there were no beds in rehab and he had to have his wound packed everyday (his chest cavity). He had good insurance, but it still was not enough.

My daughter and son too took care of their dad, they were teenagers. A few days after my husband died, my son lost his life. My daughter (14) asked if we could leave the house we had only eight more years to pay off. (It was a small home but it served our purpose). We moved into an apartment and I tried to sell my house. It sat on the market with no buyers because of the housing bubble.

When I went back to work, after taking off a year to care for my husband (did I mention that during his surgery, fluid collected around a undetected 2 cm tumor in his brain and rendered him brain damaged), and a;though he was a Vienam veteran and worked his whole life and had a great job at a university, there was no help, nothing. I had to care for him and advocate for him.

Anyway, four years later, I can barely survive. I have gone on several job interviews and get to the final two candidates, and they always opt for the cheaper, younger less experienced person. I lost my house, my family, my job, (I am not a deadbeat, I payed my bills until my life savings was depleted). Finally, I got a job for $20 an hour. My daughter and I are expected to live on that and pay off credit card debt that we used to care for my husband. (Originally my interest was 8 percent, and now it is 17 percent and I don't even use the cards anymore).

I am a college grad with hours towards a masters. I go to work every day. I don't take vacations, or go out to dinner, or buy clothes. I don't have cable TV, I go to the library to check out books and movies. We don't have bountiful Christmases and we are always the added people at holidays dinners. My daughter is now an honors student at a top university, where she is on a full merit scholarship. My son never hurt a soul in his life. We are honest and good people.

What I am trying to say is, I didn't do anything to deserve this, so why is it wrong that I have to file for bankruptcy? I am a widow, and a woman over 50. I am not deadbeat; it's just that our society is morally bankrupt. We don't take care of those who need help, and we mock those who get help and are convinced that they are ripping off the system. You never believe it will happen to you, but it does. I am going to file, because I am bankrupt. But only financially bankrupt. I feel for all of you who told your stories. May all good things happen to you and may your lives get better.

anon314668
Post 33

I am afraid that today, there are two reasons many people file for bankruptcy. One is that younger or even older, inexperienced people get caught in one of several forms of "money traps." They end up spending money they don't have through credit, thinking the next few paychecks will allow them to "catch up". Then, something happens, an unexpected large car repair, health issues, a change in employment and/or reduction in pay, etc.

Two, the banks and credit industry continue to charge high rates of interest (8 percent to 28 percent or more) despite money from the government that is obtained by these credit agencies at zero or near zero percent. Nothing has changed for them and the so-called "bank reforms" since the Lehman Bros., Goldman-Sachs, AIG, etc. snafu or 2008. They got bailed out and recovered in a year or less while continuing to bilk individuals out of their money at exorbitant rates. When was the last time you heard of the term "usury"? Indeed, drive down any main street U.S.A. and count the number of "Cash Stores" which were all but non-existent 20 years ago, save a few title loan places.

As one previous poster said, the banks get or create the money from nothing and rape the general and largely naive public. Victims are what we become and it is getting more and more difficult to not fall into a pit, let alone act unwisely with the little income a person or family may have.

anon310468
Post 32

@anon91237: I have been a tax-paying, consistently employed citizen my entire life and have never been without work or missed a payment on any bill from the time I left home at the age of 18 until I was 52 years old. I have lived within my means and paid my way in life. Two years ago, I became permanently disabled with a spinal disease which caused me to lose use of my legs and arms and I have been rendered useless to work. If it were not for a program that typed out words for me on this computer, I would not even be able to use a computer at all. I was forced to file bankruptcy because I could no longer keep up with my monthly bills and obligations. I had no other choice and if it weren't for the fact that I had bankruptcy as an option, I would have been homeless and forced to live in a nursing home.

Karma is real and people will very likely reap what they sow. Some people think they are better than everyone else and that nothing like that would ever happen to them. They are the very people who end up eating their words later in life and end up having to do the very thing that they spent years belittling, barking and preaching to people about.

anon310230
Post 30

When you actually break it down in dealing with a bank, consider that the bank is loaning YOU money that they don't actually have. They create it and charge you to use something that was created out of thin air. A good gig if you're an insider; but, quite oppressive if you are not an insider. Therefore, how can you be liable for something that was created out of nothing?

anon305705
Post 29

I am sure some people are victims of their circumstances. However, I also know many who file bankruptcy after furnishing their homes and paying off their new cars.

I've always lived within my means, have a small home and old cars. It irritates me that some of those who file have far nicer items than me or my children.

Bottom line: I shouldn't have to pay my debt and that of others, too.

anon302220
Post 27

Bankruptcy ruin, credit card/history? On the contrary, filing bankruptcy tells creditors that you are serious about solving your debt problems. Many people are able to purchase a car within two months of filing bankruptcy, and purchase a home within two years of filing.

anon297056
Post 26

I realize that there are many people out there who are the "unfortunate debtors" - unemployment, unexpected hospital bills, just plain hard luck. Some people have to turn to bankruptcy because they have no choice. However, there are those who filed for bankruptcy and continue to go on numerous vacations, play in golf tournaments, live the high life, and by the way, this is not their first bankruptcy. They have no conscience and feel that the world "owes them". They just rack up the credit cards and all of a sudden, they are bankrupt!

anon289920
Post 25

I have just filed for bankruptcy, and let me tell you, it was *not* an easy choice. My husband worked 17 hours a day for the last eight years and I also helped and also brought up three children. He never once complained.

Our business went from 350 customers to half, leaving us no choice but to sell. Well, would you buy? So we could fiddle with the books or be honest and pray someone buys. We went for being honest. We lost our business and are waiting to hear about the house we never missed a payment on. So please don't judge. Your life can change tomorrow.

anon273279
Post 22

Two years ago my fiance lost his job and in addition lost his unemployment benefits shortly after. I was left to pay for everything while he desperately looked for any job he could find, with no luck.

I only make 31K a year so I had to resort to credit to pay for many necessities, even rent. I went from having excellent credit before this happened to poor credit and feeling like bankruptcy was my only and best solution. Everything I was making was going to pay credit cards and the minimum payments were getting so high I couldn't even afford them anymore.

I knew if I was ever going to have a life again then filing bankruptcy was my best solution. My attorney filed for me as of last week and I'm so glad the process is underway. I would much rather sacrifice my credit for a while and have money in the bank then pay out everything I make just for credit cards with nothing left over for anything. Not to mention the huge amount of stress that goes along with that.

anon254896
Post 21

I am considering bankruptcy and here is my perspective. Six years ago, with a wife and one small child, I bought my "starter home." I scraped together a small down payment, and got an 80/20 mortgage with a seven year balloon on the 20 percent. I bought at the height of the market and spent $180,000. Now, with three kids jammed into a small house, my home's value is half of what it was, and my health care premiums have quadrupled. I had planned on "upgrading" before the balloon came due. In six months, I need to come up with $25,000 cash for the balloon.

My wife and I have decent jobs, but nobody in Detroit has gotten a raise in years.

I would be happy to hand my house over to the bank and call it good, but my lawyer has indicated that the mortgage company will sue me if I walk, for something like $90-100K.

The banking crisis killed my home's value, but I should feel obligated to keep paying when the banks get federal bailouts and pay outs on collateralized debt obligations?

The government is not doing me any favors. Freddie Mac owns my mortgage and won't negotiate or approve a short sale.

Sorry folks, but my pride is telling me to stop being a sucker and declare bankruptcy.

anon254356
Post 20

In the past I have always paid my bills and had enough money to make it from month to month and was happy with that. I got things -- nothing fancy, mind you -- just enough to live at income tax time. I have never in my life have driven a new car. I always drove something 8 to 10 years older because that was all I could afford.

I was hospitalized due to a heart attack and ended up $44,000 in debt and my employer's insurance tried to bail on me. So I got a loan to pay the hospital that was threatening me with collection. I thought I was doing the right thing.

I got screwed by the bank I got the loan from. They jumped my rate to 25 percent. Yes, that's right, 25 percent, and the debt merry go round started. I had A+ credit at one time but not now.

I got other loans to buy (you guessed it) an older car for my wife that was later repoed after a payment was made. (I was late due to another trip to the hospital). So it went on and now I am facing "bankruptcy".

I tried credit counseling at first and started getting nowhere fast. I got tired of trying to feed my children on nothing and answering why they could not have a small toy or candy once and awhile. My children and wife are the most important people in my life and I would do anything it takes to make their lives better. But due to my current medical condition to which now I have many. I ask myself to what service would I be to my family dead. I have to pay for medication, regular medical visits, etc., that I didn't have to pay not long ago and it is expensive to boot. So I ask you if you were faced with my situation, what would you do?

anon129782
Post 18

Horse manure. Retain a bankruptcy attorney immediately!

Don't listen to all this "stand on your own two feet crap", regardless of how you arrived in your particular financial crisis, job loss, divorce, medial bills, you need professional advise on what to do next.

As someone said previously, this is a business decision and you need to do what ever it takes to protect your future and your families and without knowing the specifics of your case, no one can tell you what you should do with respect to filing for bankruptcy protection.

Please, talk with an attorney. You have rights under federal law.

anon126692
Post 16

I am seeing the world quite differently. I have an upside down home mortgage, and my husband and I lost our jobs and we were really good, perfect credit, had about 80K in savings, which had taken us five years to get and it hurt when we were left with nothing and had to get credit.

Why didn't we take a vacation or spoil ourselves? we just spent all that time saving. I guess it was good, because it got us and our three kids further. I finally had a friend recommend welfare to me. I felt really blessed to live in a country where at least we could have health care and eat while until we could get a job. But as I did this and really appreciated it, I met several people who were also on welfare and they had been on it for years, they were collecting money under the table.

There was no use in earning money because they would lose welfare. And they were essentially trying to teach me to do the same. And it made me sick. I just wanted to find one legitimate story.

I realized that there is a good chance that 90 percent of people on welfare take advantage of it. They start planning their finances around it, so they can continue to collect "free money". Although it is not their fault, completely. The government has set it up to get taken advantage of. They do not have it set up so that you are in a better position by working.

Even the people at the agency say "the best thing you can do in this country is to make as many babies as possible." Because the more children the more benefits, and probably more than any of those babies need.

Anyhow, it has opened my eyes. I think that bankruptcy is a little too easy. The banks and creditors don't pay for it, all the people that pay their bills on time, pay their insurance, and taxes, are the ones that pay for it.

I propose that the government should find work. Yes! I said it, the government should have jobs for people that want money from the government. You want $800 a month in food stamps, that will be 80 hours of work this month. You can do it, your husband can do it; there would be options of time and jobs.

Why not? The government is already paying people to do nothing, in hopes that they might do something. Why not give them some "chores" in order to get this allowance?

Maybe anyone could be on Medicaid, if they work 100 hours per month in the program or pay $1,000 a month. The government can't find stuff for people to do?

Pick up trash, clean, paint, knock on doors, census, build homes, care for people's children who are working, volunteer in schools, libraries, hospitals. Have a huge farm to work for food for the hungry.

America is spoiling us. I can see how it is easy to take advantage of it, but I also see how annoying it is to people who work really hard and take extra precautions to make sure they do not have to take from others.

anon122891
Post 15

To those who think filing for BK is morally wrong, let me ask you this: Have you ever not broken the law (e.g. speeding), lied to your spouse or friends, cheated on taxes or other things in life?.

According to some research I've read, about 94 percent of all taxpayers lie on their tax returns in some form or fashion (e.g. over claiming expenses for tax write offs, filed for divorce to get benefits, etc.). Why do you judge people who file for BK and assume they're morally wrong when judging belongs to God?

While there are some individuals who take advantage of the system, others are desperately in need of BK because of massive hospital bills, consequences of the housing bubble and unemployment, or deep in debt as an entrepreneur.

Before you judge others, look into the mirror and see the plank in your eyes.

anon101219
Post 12

BK is your right! You're much better off with cash in the bank and no credit cards. Dump them, corporations do so can you. BK is not the nightmare the corporate world and mainstream news, and a lot of people on this blog think.

It's not a moral decision; it's a business decision. if you're killing yourself paying shylock file BK, you'll be happy you did. Those here who blame the average Joe for high interest rates are drinking the Koolaid. Follow the rich. They would file in a heartbeat if need be, and they are also the first ones to dump their underwater homes. Get a clue people.

anon93427
Post 11

For Anon63916:

You're dumb if you are killing yourself to pay your credit card bills.

Bankruptcy is legal and it offers a fresh start. It's a business decision.

Wealthy people like Donald Trump file for bankruptcy again and again and still live the high life while some mentally challenged, brain washed, broke fool eats beans and drives a beater to pay back the man. Yeah, good luck with that.

I'd rather file BK and have a fat bank account.

anon91237
Post 10

Hey look! I didn't make the bad decision(s) or get sick without insurance. That's what idiots do. Yet, those who pay their bills are the ones taking it on the chin for the morons who did not plan.

1. Live within your means. Happiness is not promised, only the pursuit of it is.

2. Suck it up and pay your debt. It's not my job to nurse you and change your financial diapers by reaping the consequences through higher interest rates and changes in credit policy.

3. Stop crying. You're not hurt. Just stupid. If you now realize that you're a moron, stop being a moron and wise up. Take care of business. Since some of you like quotes, chew on this: "You made your bed, now lie in it."

All consequences are the results of good or bad choices.

anon90044
Post 9

It's easy to say get a job and pay down your bills, but did you know the credit card companies most often will not work with you? They take your bank account, take you to court, call your home, work, phones from 7 a.m. till 8:59 p.m. every day of the year so I just hope you never lose your job or get sick because unless you can earn $2,000 instantly, you're going to be screwed. god bless you.

one more thing: I'm not sucking on the system because my tax money bailed out the banks that own my credit cards so why should they double dip?

anon88035
Post 8

Who is the best thief? someone who owns a bank and charge 25 percent interest on a credit card or the one that robs the bank?

anon80254
Post 6

It's not always a matter of racking up debt and one day realizing you're up to your neck in bills and can't breathe.

My credit was absolutely perfect until I got hit with a deadly disease and had no choice but to go to the emergency room, regardless of the fact that I have no insurance.

In the past, I had paid all my bills on time and had immaculate credit. Then I get hospitalized for a little less than a week and I'm $25,000 in debt and have no means to pay it back. So you tell me, am I taking a free ride by filing for bankruptcy?

I make next to nothing a year and can't front 25k. Should I have died instead? It's ignorant to think that people filing for bankruptcy are one of the same.

If you are between a rock and hard place, sometimes there is no other choice.

anon78423
Post 5

Vacation? Spending money? Huh? Like anything else in life, you cannot lump all people into the same basket. I haven't taken a vacation in 20 years.

I've gone without doctors' visits, food (surviving on a very limited diet), and any type of vacation (not even a three-day weekend trip) for years. I have also helped others who end up only taking advantage.

Took strangers into my home in a desperate attempt to stay current on all my bills, only to end up with alcoholics, drug addicts and even a psychopath or two.

For the first time ever I'm considering bankruptcy, as I just cannot do it any more. It's either that or quit my job, cash in my only retirement (through my employer) and use it to pay off bills, leaving me homeless. What would you have me do? Please do not judge all people.

Yes, I made mistakes. Yes, I regret getting into debt. Yes, in a perfect world we would all be perfectly responsible like you and no one would get in a position where bankruptcy was necessary. And yes, there are those who take advantage of the system (I've heard some even file every eight years).

But there are others who are hard working and have gone without and done their dead level best not to go here. Judge not lest ye be judged.

anon71525
Post 4

What if you've worked but just made some bad decisions and now realize what and where you went wrong? You're trying to get yourself out of the hole you've dug for yourself but it's just too deep. What's wrong with getting some help? No everyone is taking advantage of the government, some of us really need help.

anon70220
Post 3

we are all debt slaves in some form or fashion, basically collateral (cattle) your very social security number is a barcode. take full advantage of the system because it definitely will return the favor. live and let live!

anon68870
Post 2

I agree 100 percent. Get off your butt and get a job and pay down your debt like everyone else and stop feeding off the system. Stand on your own two feet. You made the debt, now own up to it! --

anoninnj

anon63916
Post 1

I think we are making it too easy for people to file bankruptcy. They are filing with seems like no consequences! Personal and business bankruptcy. And here I am killing myself to pay my bills and do what is right and they are filing and then continue to vacation and spend money. When will this end?

Until there are consequences, people are going to continue to allow the government to take care of them. Where are people's pride?

Post your comments

Post Anonymously

Login

username
password
forgot password?

Register

username
password
confirm
email