Bankruptcy – The Effects Of Bad Credit

There was a time when bankruptcy was probably the biggest stigma that could be attached to any person or business. Thankfully those days are long gone. Today, bankruptcies are fast, efficient and frequent court procedures designed not as a punishment for the debtor, but as a means of drawing a line under un-payable debts and allowing everyone to move on. Most people would not exactly like to be made bankrupt. In most cases where it becomes necessary, it is seen as a welcome release rather than a humiliating penalty.

When You Become Bankrupt

Bankruptcy is what happens when you simply cannot repay your debts. A case is filed with your local court and they are asked to declare you bankrupt. A trustee will be appointed to contact your creditors to confirm the amount your owe. Depending on the type of bankruptcy filed, they may be in charge of liquidating you assets to pay off parts of your debt. If this happens, creditors will be paid proportionately. This means that if your assets are not enough to pay off the debts in full, an equal portion of the assets will go to each creditor.

Bankruptcy Disadvantages

The disadvantages of this are obvious. In some cases you can lose your property, including your home and car. This does vary by state and many to allow exceptions for debtors to keep their main home. Things like vacation homes, boats, expensive jewelry, and extra vehicles will generally be sold off to pay for the debts. In some satiations your savings may also be used to pay your creditors. If you rent your home you are not in danger of being evicted. Your personal effects such as clothes and most furniture, will not be taken by the trustee. These are considered too personal and insignificant to take.

You will also take a significant hit to your credit report. Bankruptcy will show on all credit reports for up to 10 years. This will impact your ability to obtain credit at reasonable rates until you can prove you are able to handle credit again.

The Advantages

The advantage of going bankrupt however is that it gives you a clean slate. Regardless of how much you owe, at the end of the process, you will emerge with a completely clean slate. You will not owe anybody anything. Even if someone forgot to make a claim to the trustee, you will no longer owe them anything.


The Future After Bankruptcy

After your bankruptcy has been finalized and you have moved on you will be able to start rebuilding your financial life again. Bad credit ratings will ensue, but rebuilding your credit is possible. Just like a child, baby steps are all that is required. Step by step, more credit options will become available and after several years your credit rating will become ‘average’ if you keep focused and don’t fall into any quick fix traps.

While the process of bankruptcy may take a while, during which you will not be able to control your finances and may have to give part of your income to the trustee, it is generally seen as worth it. You will emerge ready to make a new start.

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