What is the downside to filing for bankruptcy?
As helpful as it can be to people who are seriously in debt, bankruptcy can have disadvantages that can be difficult for people to move past. While this federal action can dismiss or reorganize most or all of your debts, it can also prevent you from re-establishing your credit and the financial behaviors you need to start your life anew after your case is discharged.
Before you file for bankruptcy, you should understand its downsides, and why it is beneficial to hire an attorney to guide you through this complex legal procedure.
Bankruptcy Is a Time-Consuming Process
It used to be that you could declare bankruptcy and have your case resolved within a matter of weeks or months. Today, however, the process of declaring bankruptcy can take quite a bit longer, particularly if your case is complicated or if you have a lot of creditors that have a vested interest in its action.
Before you declare bankruptcy, you should understand that it will not be a quick fix to your debt problems and, in fact, will require a significant amount of effort on your part. You should head into this process fully aware that it can take up to a year for your financial obligations to be dismissed or reorganized.
The Blemish on Your Credit Report
Your aspirations of a fresh credit start could quickly be dashed when you discover that your bankruptcy could remain on your credit report for seven to 10 years. Each time a potential creditor pulls your report, they will see the bankruptcy on it and potentially turn you down for financing.
If you are approved, you could end up paying high interest rates on the new line of credit. These high interest loans could undermine your fresh start and cause you to experience the same financial difficulties that led to your case being filed in the first place.
Some Debts Are not Dismissed in Bankruptcy
Your fresh start could also be undermined by the fact that some of your debts may not be discharged or reorganized during your case. Obligations such as student loans, child support, taxes and the like are judgments and, more importantly, can remain with you even after your other debts are resolved by the court.
You may be frustrated to spend all of that money to file for bankruptcy, only to be left with expenses that you still cannot pay. In fact, you may even believe that the expense of filing is not worth it—simply because you could still face obligations that are beyond your means.
Follow Your Attorney's Advice
Despite these downsides, it is still crucial that you consult with a lawyer before you file. Many attorneys offer free consultations to explain the entire process to you, the fees involved and how your case could play out in court. If you have special circumstances such as a disability or other hardship, your attorney can tell you if your case could be determined differently to others.
An expert lawyer can tell you if bankruptcy is genuinely in your best financial interest. You should retain counsel prior to filing to make sure that your precise needs are addressed, that mistakes are avoided, and that you have sound counsel by your side to avoid harassment and unfair collection from your creditors.