Once an individual files for bankruptcy, not all is resolved, because there are many negative consequences. Though bankruptcy is a way for people to get themselves out of a hopeless financial situation, it will be a long time before they are truly back on track financially. Knowing the negative aspects of bankruptcy filing helps people determine whether the situation is the proper course of action.
Upon bankruptcy filing, the individual will be limited in terms of spending. This is because the credit cards containing outstanding balances must be forfeited. Lenders represented by the unaffected cards may feel it is too risky to continue extending credit and might close those accounts. Individuals will have a difficult time being approved for any credit cards for up to ten years after bankruptcy filing. Any approvals they do receive will likely have extremely high interest rates.
If the hope was to purchase a home or car, the individual needs to put those dreams on hold because it will be very difficult to get a mortgage or car loan. Not only will people need to give up those dreams, they may have to give up some assets, such as valuable jewelry, recreational vehicles and watercraft, and collections of items that have redeemable value. This can be devastating to someone who has had antique collections in the family for generations.
Creditors regard bankruptcy as the most negative thing on a credit report. It is considered far worse than having a low credit score. For up to ten years after filing for bankruptcy, the individual will be subject to credit restrictions. During this time, the person needs to rebuild the credit history from the ground up, maintaining a credit record that is near perfect.
It is not easy to repair credit after bankruptcy, especially because it cannot be done by properly managing credit cards. Individuals will not have access to most forms of credit for up to a decade, which is both a blessing and a curse. Sometimes, situations like this are just what a person needs to become more financially responsible. Individuals will not be able to rely on credit and must spend less than what they earn. The hope is that these habits will stay with them for a lifetime.
In some cases, bankruptcy can affect an individual’s career aspirations. Within the UK, individuals who have filed for bankruptcy may not act as a company director, chartered accountant, lawyer, or justice of the peace. They may also not become a member of parliament or the local authorities. Formation, promotion, or management of a limited company is also not permitted without prior court permission. Individuals are not permitted to engage in UK business trade under other names unless all people involved are informed of the bankruptcy.
Going bankrupt is not something that should be entered into voluntarily without a lot of thought. The negative consequences are many and they can last for ten years or even longer. People who are faced with debt should explore all other alternatives to improve their financial situation prior to pursuing bankruptcy.