How Bankruptcy Will affect Your Future

Written by jessica Alba

Filing bankruptcy should be a last resort, when you are facing major financial difficulties. It is not a decision to be made lightly. Sometimes, it is absolutely necessary, to give you a second chance and a better quality of life for you and your family. But, you must count the cost. You need to know how bankruptcy will affect your future.

Bankruptcy is definitely not the easy way out of your financial troubles. In some ways, you will simply be trading one set of troubles for another. But, when it is the only solution that remains and you have to take care of your family, it is better than ending up on the street.

Your Purchasing Power

Probably one of the first things you will be told is that your credit rating will be absolutely trashed with bankruptcy. Depending on whether you file chapter 7 or chapter 13, your credit score will reflect the bankruptcy for the next 7-10 years. Although it is just a number, it can adversely affect your purchasing power. Right now, it does not seem like a big deal, because you have no money to buy anything anyway. But, what about a few years from now? Consider the following scenario:

Joe lost his job a few years ago. Like most people, he was living pay check to paycheck. Finding a new job was almost impossible, and before long the family finances were in dire straits. Creditors began calling. He was behind in the house payment and foreclosure proceedings were just around the corner. The only option left, to protect his family, was to file for bankruptcy.

Thanks to the fresh start and a new job, life is looking up for Joe and his family. But, they have one major problem. The old family car is on its last legs, and fixing it will cost more than it is worth. At best, it will only delay the inevitable. They simply need a newer car. Unfortunately, when Joe tries to purchase a car, the dealership denies his application, because the bankruptcy still shows up on his credit history. For all they know, he made poor financial choices in the past, and he might not pay for this car in the future.

After bankruptcy, any time you might need to make a major purchase on credit, you have a good chance of being denied. Even if you are extended a loan, the extra fees and higher than normal interest rates can put you back in the poorhouse.

Job Search

Did you know that your credit score can adversely affect your ability to get a new job? Three groups of people are allowed to be privy to your credit history. Potential lenders can check whether you are a good credit risk. Individuals who have cosigned for loans will be told if you file for bankruptcy, and potential employers may require a credit check, if you are being considered for a position.

Although it may not seem fair, your would-be boss simply wants to make sure that if he/she is going to give you a responsible position, especially if you are to handle anything to do with finances like an expense account, you are a responsible employee. Oftentimes, a credit check is their only clue. Hopefully, you will get a chance to explain, if your financial difficulties were due to a major illness or accident in the family. But, there is no guarantee.

The Emotional Toll

For an individual that has been accustomed to paying his/her way through life, the emotional toll of bankruptcy can be devastating. Even though the circumstances are beyond personal control, and it had nothing to do with poor financial choices in the past, it is a bitter pill to swallow.

A lot of people have a massive sense of guilt that sends them into depression. They want to pay creditors, but they simply cannot. A job loss or illness has made that impossible. Even a job transfer can really send finances reeling. Imagine being told you are being relocated, in order to stay employed. However, there is one major problem. How are you going to sell a home that is already located in a depressed housing market?

If finances are already tight, how can you afford to pay the mortgage on this house and the home you are going to need in the new location? The point is this: a lot of people are facing bankruptcy simply because they are living beyond their means. However, many hard working responsible individuals have been thrust into bankruptcy through no fault of their own. It does no good to feel guilty anyway. It cannot change anything, and it can keep good people from taking this second chance and having a great future.

Now you know how bankruptcy can affect your future. But, if you know you are likely to face these challenges, hopefully you will be better prepared to handle each situation as it arises. Remember, bankruptcy can be a positive step toward a second chance and the ability to provide for you and your family.