08 Apr The Eternal Impact of Claiming Bankruptcy to Rid Debt
The stress of carrying too much debt for the income you make could have you thinking that bankruptcy is the best way out. It seems easy enough. After filing a petition for relief, the collection calls stop. You turn your life over to the courts, and in about six months, you can emerge debt free.
Before taking this route, consider both the long-term and eternal consequences of filing bankruptcy, as in forever!
Bankruptcy Does Not Eliminate All Debts – A bankruptcy judge can discharge certain unsecured debts such as credit cards, personal loans, medical debts, and some judgments. However, it typically does not eliminate debts such as student loans, tax liens, child support or alimony, debts incurred within the last six months, and some judgments.
You Lose Possessions – Discharged secured debt, such as a home or car loan, will result in the loss of the asset. The courts can also require you to sell other possessions, such as titled personal property like a boat or ATV, along with assets such as real estate, collectibles, furniture, or jewelry.
State by State: Each state has exceptions, which will list any assets you may retain. All assets you own above, and beyond the exception, the bankruptcy trustee can sell to pay creditors. Your primary home (provided you pay the mortgage) and retirement assets nearly always qualify for an exemption. You should not tap IRA, 401k or other retirement funds to repay unsecured debt because the courts protect these assets from creditors. Income received from retirement accounts does not receive the same protections.
Bankruptcy benefits consumers who have few or no assets and is most useful in eliminating credit card and medical debts but there are always high life-costs when claiming it. What are life-costs? Let’s consider a few:
Mandatory Waiting Period for Major Purchases – Filing bankruptcy will disqualify you for some loans and can affect your ability to obtain credit. Fannie Mae, Freddie Mac, and FHA loans have mandatory waiting periods before you can qualify for a new loan. Lenders also have waiting periods, which could be longer than the government agency requirements. In many cases, it will be four years or more before you can qualify for a home loan.
Credit cards, vehicle loans, and other forms of credit will have different rules for dealing with bankruptcy.
Bankruptcy Will Impact Every Aspect of Your Life for a Decade or More– A Chapter 7 bankruptcy remains on your credit file for ten years. During this time, you will likely pay higher interest rates on any new debt with rates of 30% or higher in the first few years. You are also more likely to pay an annual fee on new accounts, pay more for insurance, and have more difficulty renting a home, changing jobs, and qualifying for new services without a deposit.
Permanent Public Record – A bankruptcy never truly goes away because the bankruptcy proceedings become part of your permanent public record. It will appear on background checks and a search of your financial history. The record will contain details of your financial circumstances, why you filed, and what debts the court discharged.
You must always confirm the bankruptcy on applications asking the question, “Have you ever filed for bankruptcy?”
Bankruptcy should be a last resort option because it provides limited benefits in the discharge of debt and comes with a steep financial cost, which can offset the money saved through the discharge. You must also acknowledge, and in many cases, address the circumstances around your bankruptcy, indefinitely. The word, ‘forever’ is a very long time.
About Titan Consulting Group
Titan Consulting Group helps consumers evaluate various debt relief options and choose the right program that best fits their short-term and long-term financial goals. We work with consumers seeking debt consolidation loans, or who may be considering options like debt negotiation or bankruptcy. Through our network of partners, we can help you find the right solution to reach your goals and get back to living a life free from high interest credit card debt.
Contact us today at (888) 488-4517 or Apply Online now.