by T. M. Robertson

Created on: July 01, 2010

Before anyone decides to file bankruptcy, they should make sure they consider all of the consequences associated with doing so. The first thing many people think about bankruptcy is it would be great to eliminate all their debt. However, bankruptcy isn’t as simple or pleasant as just eliminating all of one’s debts. For example, if a person files a Chapter 13 bankruptcy, they are still required to make payments on their debts, and even if a person files a Chapter 7, that doesn’t mean all of their debt goes away. In any case, the following are the top 10 negative consequences with declaring bankruptcy.

1. Poor Credit Score

When a person files bankruptcy, it’s a given that their credit score will go down. This will have a trigger effect on their finances because a low credit score means they won’t qualify for many types of credit, and when they do qualify, they will end up paying much more in interest charges. The worst part is that they will have a poor credit score for an extended period of time. A Chapter 13 bankruptcy will stay on your credit report for 7 years, and A Chapter 7 bankruptcy will stay on your credit report for 10 years. That’s a long recovery period.

2. Difficulty Obtaining New Lines of Credit

Another potential problem is that after filing bankruptcy, it will almost be inevitable that at some point, you’ll need to try to get new lines of credit. There are many companies that won’t consider applicants that have filed bankruptcy in the past 10 years, and the ones that do will end up charging outrageous rates in the form of additional fees and interest charges. For example, there are many that have auto loans with interest rates upwards of 20% because of their bankruptcy and low credit score. You’ll definitely be able to get credit after filing bankruptcy, but it won’t be at reasonable rates.  

3. Paying More for Purchases

If you look at the consequences of filing bankruptcy in the long term, it’s not ideal. Take this for instance, a person who has filed bankruptcy soon finds themselves in the market to purchase a new home. Because of the bankruptcy and their low credit score, their interest rate ends up almost double of what it would have normally been if they were in the good score range. While the bankruptcy will only be on their credit report for 7-10 years, they’ll be stuck in this mortgage for 30 years. Therefore, they’ll be paying those compounded interest

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