Bankruptcy is a legal proceeding that can relieve the overwhelming financial debt many people face. Bankruptcy proceedings, however, can be challenging. The laws regarding bankruptcy are often confusing and complex and have changed substantially over time.
Bankruptcy offers people a way to disentangle themselves from overwhelming debt, and in some cases, bankruptcy can even provide a fresh start. However, it is important that you understand how this will change your life moving forward.
No matter what kind of bankruptcy you are considering, it is vital to fully understand how it works and the potential outcomes of taking this action. Ideally, you should contact a qualified bankruptcy lawyer to discuss your circumstances, and the potential impact of your decision.
Below are four different scenarios of how applying for bankruptcy can affect your life.
1. Employment Discrimination
Discriminating against a job seeker who has recently filed for bankruptcy is illegal. Even with this law, discrimination still occurs. Your prospective boss has the right to review your credit history. This is most likely to happen when the position includes managing money.
Your potential employer has to seek your consent before reviewing your credit history. A reliable bankruptcy attorney will notify you of your rights and advise you on the best action to take when seeking employment in such positions.
2. The Stigma Associated with Bankruptcy
People file for bankruptcy for many reasons, including credit debt or loss of a job. A Harvard study revealed that the largest number of people who filed for bankruptcy was 62%, due to unpaid medical bills. Out of this number, 72% had health insurance.
This statistic shows that it is not unusual for people who have gone through bankruptcy to feel shame. They do not realize that they feel guilty for a situation they have no control over. Some of the guilt comes from society and the stigma associated with the notion that you cannot take care of yourself. You might also feel relief from what would seem like the worst financial pressure.
3. Trouble Acquiring Credit
Bankruptcy is usually a sign that you are unable to manage your debts. When creditors see that you filed for bankruptcy, they may be more unwilling to extend any credit to you. When you file for bankruptcy, you will need to delay applying for mortgages or auto loans.
In most cases, people who file for bankruptcy can get credit after one to three years. When your credit approval goes through, you will have to face notably have high-interest rates and fees. It takes five to seven years, from the filing date, to qualify for a mortgage.
4. Low Credit Score
Credit scores act as key signs of whether you are reliable enough to repay your debt. Filing for bankruptcy will crucially lower your credit score. Your bankruptcy will remain in your credit report for seven years after the date of filing. Additionally, credit reports contain information on the particular debts that contributed to your bankruptcy.
Over time, the effect of bankruptcy reduces as some of your debt decreases or, in some cases, removed.
Related reading: How to Rebuild Your Credit After Bankruptcy?