Filing for bankruptcy is never easy. Anyone who’s ever taken it on can tell you the weight that’s lifted off your shoulders when the process is finished.
Conversely, the road to bankruptcy starts with a slew of stress, blame, and confusion. This is all centered around the consequences that await. With that in mind, read on to take a comprehensive look at filing bankruptcy consequences that await you.
Let’s dive in!
Owing Back Taxes
The consequences of filing bankruptcy when you owe some back taxes can be serious. In the event you are unable to pay your taxes and choose the option to declare bankruptcy, you may notice significant financial repercussions from the IRS.
When filing for bankruptcy, this could indicate to the IRS that you are lacking enough income or assets to pay the taxes you owe. The IRS could then take legal steps to collect back taxes, such as asset seizure or wage garnishing.
You may be required to pay the taxes even if they have filed for bankruptcy. Because of the potential consequences, you need to consider other options before filing for bankruptcy if they owe back taxes.
Get moving and make sure to reduce back taxes owed with the help of professionals. This will save you costly and complicated tax troubles.
Negative Effects on Credit Scores
Credit scores reflect your creditworthiness and demonstrate your ability to responsibly process debts and manage finances. If you file for bankruptcy, it can stay on your credit report for up to ten years, significantly decreasing your credit score and making it difficult to secure future credit.
Bankruptcy filings may affect your ability to qualify for certain loans, such as mortgages, or pursue certain types of employment that require a clean credit record. Other unwelcome consequences include the difficulty to qualify for rental housing and purchasing insurance.
This can come with significantly higher premiums. Finally, filing for bankruptcy can take an emotional and psychological toll due to the mark it leaves on your financial and personal records.
Potential Decimation of Assets
If you choose to file for bankruptcy, you can potentially face the decimation of all of your assets. This occurs if the bankruptcy court seizes either all or most of your assets to help pay back your considerable debt. Depending on the chapter of bankruptcy you file, your assets may be liquidated.
The proceeds are used to pay your creditors. You may also lose access to your bank accounts and other financial accounts, making it hard to manage your finances. It can be harder to obtain new credit due to your bankruptcy.
This makes it challenging to obtain loans or other forms of financing. Lastly, filing bankruptcy can remain on your record for as long as 7 years. This made it difficult to be approved for loans and other forms of credit during that time.
Loss of Social Standing and Self-Esteem
Loss of social standing and self-esteem may be long-lasting consequences. If you have gone through bankruptcy you may find yourself excluded from certain social circles in which your financial status makes them feel unwelcome.
Thoughts about lack of financial security or the stigma of filing can also impact your self-esteem. Mistreatment from creditors or other organizations may further the issue. Bankruptcy can also prevent you from higher levels of education, employment, or receiving financial assistance.
You should not feel ashamed of filing bankruptcy but instead, you should understand that it can be a start to a better financial future. It’s important to remember that it can take time for social standing and self-esteem to restore once bankruptcy is finalized.
A positive attitude and dedication to turning finances around will be essential.
Temporary Decline in Ability to Obtain Employment
Even after a bankruptcy case is discharged, your credit report will show the bankruptcy for up to ten years.
Although employers are not permitted to discriminate based on bankruptcy, the fact that bankruptcy is shown on your credit history may be a factor in determining whether you are hired for a job. Some professional licenses may have restrictions that prevent filing bankruptcy.
They can also require notice of bankruptcy filing. These restrictions may make it more difficult to obtain or re-obtain a professional license.
Because filing bankruptcy may indicate a lack of financial responsibility, it may also make it more challenging for you to find employment in the future. Therefore, it is important to consider the long-term impact of filing for bankruptcy before deciding to do so.
Difficulty to Obtain Credit Loans
When a person files for bankruptcy, one of the most significant consequences is difficulty to obtain credit loans. The bankruptcy process affects one’s credit score immediately, ultimately making it almost impossible to receive a loan or other type of credit.
Most lenders consider this step before they decide to provide someone with a loan. Lenders also look at your recent payment history. This is to determine if they can be trusted. Since filing for bankruptcy suggests that a person will be in debt longer, lenders will be more likely to reject the person’s application.
Or, they will only offer very high-interest rates. Those with previous superb credit scores may find that their access to low-interest loans and other offers significantly decreases once they file for bankruptcy.
Difficulty Looking for a Rental Property
Most residential landlords do not want to rent to someone who has recently declared bankruptcy. This will show a lack of financial responsibility. Building trust with potential landlords and showing evidence of additional income may help. But, it can be very difficult to get approved for a rental property.
Renting a property can become expensive. This is due to having to pay for a security deposit plus rent in advance. This can be difficult to pay when having recently declared bankruptcy.
There are also restrictions on obtaining credit including being denied with:
- Credit Cards
- Auto Loans
This along with the difficulty of finding a rental property can make the post-bankruptcy life difficult for an individual.
Explore Filing Bankruptcy Consequences Today
Filing bankruptcy consequences is not one to be taken lightly. You should always consider and weigh the benefits and consequences carefully. If you find that you need to file for bankruptcy, it’s important to remember that all hope is not lost.
There are ways to rebuild your finances, keep your vital assets, and get back on track. Take the steps necessary to get on the path to financial security.
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