Bankruptcy can seem like a lifesaver for those who are facing severe financial crises and don't know where else to turn. It truly can provide a financial rebirth, assuming that the consumer is wise enough to plan ahead and make better decisions this time around. However, we shouldn't kid ourselves about the consequences of bankruptcy and make a picture too rosy.
There are certainly some long-term negative consequences that you need to be aware of. You have to factor in the pros and cons before deciding to declare chapter 7 or Chapter 13.
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You can lose your assets.
If you file Chapter 7 bankruptcy, you will be required to liquidate any nonexempt assets to help pay down the debt you owe. Of course, in most Chapter 7 cases, the applicants do not have much to speak of. That's probably why they're declaring bankruptcy to begin with, so they may not have to give up many assets overall.
However, you should be aware of this requirement in bankruptcy, as it may affect your home depending on its value and which state you live in.
Different states have different homestead exemptions, so be sure to discuss this thoroughly with your bankruptcy attorney if you're concerned about losing your house by declaring Chapter 7.
Bankruptcy is a matter of public record.
Whether you like it or not, bankruptcy still tends to have some effect on your financial reputation. People tend to think of you as irresponsible in many cases, but this should not be your primary motivation for avoiding bankruptcy. If you and your lawyer decide that Chapter 7 is right for you, it shouldn't matter what other people think.
Unless you live in some small community, most people probably won't pay attention to your filing. But you should realize that this is public information, and people can find out about this especially in the age of electronic databases. Stay tuned for more articles on the drawbacks of bankruptcy.
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