Bankruptcy is a process where the borrower is granted an opportunity of reorganizing or eliminating his or her debts through discharge or by following a different repayment plan which lasts for a specified duration. The following are the main reasons as to why bankruptcy should be avoided.
Some of your debts will not be eliminated
Some people believe that they can get rid of their debts by filing bankruptcy. However, this is not always the case. Some debts cannot be eliminated by filling bankruptcy including student loans, back taxes, alimony, and child support. Anyone interested in getting rid of these loans should avoid bankruptcy. These loans are not negotiable, and they can only be settled by budgeting around them.
It might affect your property
Once you are declared bankrupt, there are some assets that you will not be able to protect or keep. You will end up losing some of your items depending on the current state’s laws and your situation.
It will affect some of your retirement plans
It is worth to note that bankruptcy does not protect some of the retirement plans. However, some plans will still be protected from the creditors.
You will not qualify for another loan or credit
It will be difficult for you get approval for another loan after filing bankruptcy. In fact, you might take you another five years before you qualify for another secured loan like a mortgage.
Bankruptcy will affect your credit rating
Bankruptcy is known for affecting one’s credit rating. Being bankrupt will adversely affect your credit score. Once your credit score is affected, you will have difficulties in qualifying for credits and new loans for the next few years. In fact, filing bankruptcy will affect your credit rating for the next seven or ten years
It will affect your financial future
Your future financial situation will be adversely affected once you are declared bankrupt. For instance, it might influence your social security fund’s status. It is therefore important to make sure that your employer is notified once you have filed for bankruptcy.
Which are the best ways of avoiding bankruptcy?
The following are some of the alternatives that will help you in avoiding bankruptcy
- Debt consolidation program-this will involve combining your loans. This is one way of lowering the interest rate and reducing the monthly payment
- By seeking consumer credit counselling-Finding, a consumer credit counsellor can help you in reducing your interest rates and payment. These professionals can greatly help you because they are experienced in dealing with creditors.
- Getting help from your friends and family members-Even if borrowing money from friends and family members is not a good idea, you can still turn to them when you are in financial crisis. Seeking for help can help you in making a difference.