Bankruptcy is a term everyone has heard of but very few people actually know much about. It’s no secret that the term bankruptcy comes with bad connotations – and for good reason. It is not a position any person or business wants to find themselves in. But what are the long-term effects of bankruptcy? Here’s everything you need to know and how to avoid it altogether.
What Is Bankruptcy?
Put simply, bankruptcy is “a legal proceeding involving a person or business that is unable to repay outstanding debts”. A petition is usually filed by the debtor. Assets are measured, evaluated and then used to repay some of the debt. You can also be made bankrupt by one of your creditors, which is done through a court process.
You can only claim bankruptcy if you find yourself in a position where you are unable to pay off your current debts.
In theory, bankruptcy may sound like a great idea when you are drowning in debts. But in reality, there are serious long-term consequences that come with bankruptcy and need to be considered before making your decision.
What Happens If You Are Bankrupt?
It is well-known that bankruptcy can help offer relief if you are unable to repay your debts, however it does come at a significant cost. Plus, it doesn’t actually get you out of paying your debts altogether. It is worth weighing up your individual circumstances before considering filing for bankruptcy. While it may appear like a good quick out of your predicament, there are many different things to factor in. There are plenty of long-term effects that come with bankruptcy.
What Are The Long Term Effects of Bankruptcy?
Bankruptcy isn’t something you can file for and then forget about. In fact, you stay bankrupt for a minimum of three years and it stays on your credit report for at least five years. Here are some more long-term effects of bankruptcy:
Getting a Job
With bankruptcy on your file, it can be harder to get and hold down a job. Bankruptcy speaks to your personal character and isn’t considered a desirable quality on the job hunt. Then if you earn over a certain amount, some of your earnings will be taken as compulsory payments to trustees. As mentioned above, you aren’t completely free of your debts just because you have filed for bankruptcy.
Taking a Loan
Bankruptcy stays on your credit report for a minimum of five years, which means your chances of being able to take out a loan in this time are very slim.
Even travelling overseas is difficult once your file for bankruptcy. You have to submit an application before travelling, which may or may not be approved.
How To Avoid Bankruptcy
Obviously the easiest way to avoid bankruptcy is to manage your debts in the first place and pay them back. Of course, this isn’t always an option. If you do find yourself in a position of financial stress, there are other ways to approach things before filing for bankruptcy.
Manage Your Debt
Take a look at all your debts and see if you are able to set up a system to pay them back. Is there any way to manage the loan and repay it over time? Is there any way to bring in more money to help pay the debt back? Consider all your options, and whether you have any friends or family who might be able to help you out. You can even call up your creditors and see if they have any solutions to help relieve your financial pressure.
Look at a Debt Agreement
Consider a Debt Agreement the last straw before hitting bankruptcy. It is a formal way of settling your debts without going all the way and filing for bankruptcy. It is an agreement between those you owe money to, so you can pay back your debts at a slower rate. However, Debt Agreement does come with its own set of consequences:
- Stays on your credit report for five years.
- Puts your name on the National Personal Insolvency Index for five years.
- Can stop you from working in certain professions.
Another option is looking at Debt Consolidation, which means combining all of your debts into one with a third party creditor and then setting new terms to pay off this loan with them. Once again, this won’t get you out of debt, but it will give you the chance to get on top of it with new terms.
The decision to declare bankruptcy is not one that should be taken lightly. Instead, take a look at all the options available to you and see if there is another solution that can ease your load.
If you are seeking professional help, speak to the expert team at Debt Consolidation. We can help you to regain control of your finances.