If you’re in a dire financial situation, bankruptcy could be like your protection cloak. On the other hand, it could hasten the demise of your business or be the end of your assets as you know them. There are some notable pros and cons to bankruptcy that the average person may not know about. If you’re in a moment in your life whereby you’re considering defaulting on your debts, bankruptcy is something you need to study. The process is a lot simpler than you might have thought it would be and the consequences not as bad. Let’s take a quick look at why you should or perhaps, shouldn’t, file for bankruptcy.
Bankruptcy is inherently a negative subject, so let’s start off with something positive instead.
It puts a freeze on everything, for the time being. Filing for bankruptcy will activate your rights to staying powers. This prevents creditors from collecting any more payments for a while. It gives you room to breathe and take stock of your options. Those that don’t file for bankruptcy feel like they’re falling uncontrollably. Bankruptcy is like a parachute, it slows the descent down so you can land safely and rebuild your life. It also stops creditors from repossessing property, such as cars. You will still be able to head to work because your vehicle cannot be taken away from you. They will also not be able to harass you with phone calls and letters. It also prevents you from being kicked out of your apartment or home.
It will leave quite a stain on your credit score.
This may be the absolute least of your worries when you’re having a financial meltdown. But, bankruptcy leaves a serious black mark on your credit score, for anywhere between 5 years to a decade. You won’t be allowed to borrow money from some creditors, due to your account being seen as too risky. Your reputation will be known by anyone who you deal with, in a financial setting. This could mean you have trouble finding an apartment, a house, or even a vehicle to rent. Even if you do get approved for a deal, the usual terms may not be applied in your case. Being given a special set of terms such as higher interest rates for credit cards is more than likely for years afterward.
You’re not alone in this fight to rebuild your life.
It’s within the interests of the economy to have your life back up and running in optimal settings. In other words, the government and creditors want you to become a productive member of society once again and be able to put in and take out of the financial system. That’s why when you file for bankruptcy, you can use the services of a licensed insolvency trustee. Their job is to help you know and assess your options. Devising a plan of repayment and giving you an educated and realistic look at your possessions as part of their help to you. Some things you own could be sold to help you pay the creditor and you could be given advice on how to make money from your assets. Something along the lines of moving out of your home and leasing it on the market, to help you make payments, is what an insolvency trustee could recommend.
Being denied tax refunds from the government.
Frankly speaking, you will be seen as a risk by everybody, including the government. This means you may not be eligible for a tax refund if you end up paying more than you should. This includes local and regional authorities. Why is this a bad thing? Well, if you have accidentally given more money in taxes than you ought to have, you will not be able to reclaim that amount. Because you have filed for bankruptcy and perhaps not been able to pay taxes for a while or possibly took government grant money for your business and then collapsed, it’s a way for the government to recuperate the losses. It’s harsh, but it’s just something you will need to be careful to avoid.
Yin and yang
Bankruptcy can be embarrassing and you might need to take bankruptcy counseling if you owned a business. It hurts your reputation and very often, damages your pride as a professional and human being. It can make you look irresponsible and financially too hot to touch. But, it could also be a moment of reflection and they always say, the best lessons are often learned in harsh ways.
Don’t be too fearful of bankruptcy, it’s not as complex as you might think. You do have help on offer, such as insolvency trustees. But your credit score will suffer a lot and your future borrowing prospects, made bleak.