As with any legal process, bankruptcy is a complex issue with both positive and negative consequences. Anyone considering filing for bankruptcy should consider all the possible outcomes before taking this step.
So, what are some potential negative outcomes of filing for bankruptcy? According to luminablog.co.uk, here are 5 repercussions of bankruptcy everyone needs to consider before making a decision.
Obtaining a Mortgage After Bankruptcy Is Challenging
One of the biggest consequences of bankruptcy is difficulty purchasing or refinancing a home after declaring bankruptcy. Although it’s possible, the rules for getting a mortgage from American or British mortgage companies are much stricter.
According to Federal Housing Administration (FHA) guidelines, people who filed Chapter 7 bankruptcy can apply for an FHA mortgage 12 months after the filing date only if they can prove their filing was caused by circumstances out of their control while showing good credit decisions since. Otherwise, hopeful homebuyers must wait two years after their Chapter 7 bankruptcy to apply for an FHA loan.
Those who filed Chapter 13 bankruptcy have even bigger hurdles as a negative effect of bankruptcy. Individuals or couples can apply for an FHA loan only after 12 months of their pay-out period have elapsed and they’ve made payments. From there, the applicants must prove to their bank that they’ve made strides to ensure they won’t be forced to file bankruptcy again.
Bankruptcy Leaves a Lasting Mark on Your Credit Score
One of the immediate negative effects of bankruptcy is the immediate hit on your credit. Filing bankruptcy can cause your credit score to immediately drop by 100 points or more. Over time, you can slowly recover your credit score, but it will take years to overcome this consequence of declaring bankruptcy.
Moreover, bankruptcy doesn’t go away overnight. The truth about bankruptcy is that it can stay on your credit report for up to 10 years after you filed, which could continue to affect your credit score.
Bankruptcy Is Public Record
Not only does bankruptcy affect your credit report, but it can also affect your personal life. Unless they are sealed by a judge, bankruptcy records are a matter of public record and can be looked up online. Anyone with an internet connection can review the filings of your bankruptcy case, including the amount of debt discharged by a court.
One of the key repercussions of bankruptcy may come up when you are looking for a job. In most states, employers can request your credit report to learn more about your personal habits. If you apply for a federal government job that requires a security clearance, your credit report will be viewed and considered as part of your application.
Possible Loss of Property
Those who declare bankruptcy may lose property to the bankruptcy trustee. The point of filing for bankruptcy is to have the court step in and decide how much debt you can afford to pay off, and how much should be forgiven. If you own property with significant value, you may be forced to sell that item to pay off some debt. However, if you can successfully exempt your property, the trustee will not be able to sell it.
Filing for Bankruptcy Is Expensive
The idea behind bankruptcy protection is that debtors don’t have the money to pay off their loans and credit cards. But the truth about bankruptcy is that it costs over $300 to file your case with the US courts.
Filing Chapter 13 bankruptcy costs $310, while filing Chapter 7 bankruptcy costs $335. For those who are filing on their own, the fee must be paid in cash, money order, or certified funds. The clerk of courts will not accept checks or credit cards from debtors. However, if you can demonstrate need, you may be able to have those waived by the court.