Repercussions of the B-Word
Last week I shared information about bankruptcies -- the basics on the two most common personal bankruptcy types and when it may be time to look into filing. If you missed the post you can read all about it here. This week I’m going to share more about the repercussions of filing for bankruptcy. For some people who are considering filing, these repercussions may be severe enough to hold off and continue to look for other options. For others the repercussions may feel completely worth it in order to become debt free. If you feel that way then that is often a good indicator that bankruptcy may be the right decision for you.
The consequences of filing all really fall into three categories: 1) cost, 2) loss of property, and 3) damage to your credit score. Let’s focus on cost first.
Even though you can file for personal bankruptcy without the help of a lawyer, it is advisable not to do so. Filing is a complicated process and having a lawyer to help you will make it a whole lot less stressful and often means the debt plan that is created for you is more in your favor. Not surprisingly, attorney fees range pretty widley, but generally the less complicated your case, the less it will cost. At most it is likely a few thousand dollars. Of course even if it is a lot less than that the cost can seem insurmountable (I mean, that’s the whole reason you’re looking into bankruptcy in the first place, right?). The good news is that most attorneys will help you work out a payment plan ahead of time and some attorneys will actually take bankruptcy cases pro bono. The other major cost for filing bankruptcy are the court filing fees, which typically are between $300-400.
The second consequence of filing for bankruptcy are the assets you’ll lose through the bankruptcy agreement itself. If you file for chapter 13 bankruptcy then your agreement will likely let you keep most of your property, but you’ll definitely still have to give up some assets. If you file for chapter 7, then you’ll likely have to give up a lot more. Depending on what you own and how you feel about those things this may or may not feel like a big ask if in return you are able to get out of debt.
The least straightforward consequence that you’ll need to consider is the damage bankruptcy does to your credit score. Chapter 7 bankruptcies stay on your credit record for 10 years and Chapter 13 bankruptcies stay for 7 years. That is a really long time to deal with a hurt score! During that time period potential lenders will be able to see that you filed and may not be willing to lend you money for fear of not getting their money repaid. Since the ease of getting a loan is in part due to the wider economy (i.e when the economy is strong lenders usually feel more optimistic and are more likely to lend money), it is hard to say exactly how difficult it will be to get a loan or a credit card while the bankruptcy is on your record, but it will definitely be challenging. For some people that may feel totally worth it. In fact, a lot of folks have no interest in going into any kind of debt after having been in it in the past. Just don’t forget that car loans and mortgages also count! For some reason our society looks at those as “good debt” and therefore we sometimes forget they are still debt and we need approval from lenders to get them.
Filing for bankruptcy shouldn’t be taboo the way it is in this country. Of course it would be nice if we all could have perfect financial records and never get into hot water, but in a country that encourages debt and does not provide sufficient supports for folks to earn livable wages, it seems inevitable that bankruptcies exist. About 70% of Americans have less than $1,000 in savings. That means one medical bill or one car repair could wipe that out plus some. Until we, as a society, are in a more stable place we need to accept that all ways of getting out of debt are legitimate and good.
XOXO
