Understanding the Consequences
For some, bankruptcy is the right solution to resolve financial difficulties; however, it is important to understand that there are some ramifications to filing for bankruptcy.
Bankruptcy does not relieve all debts
Debts not dischargeable in bankruptcy generally include back taxes less than three years old, alimony, child support, and debts incurred through fraud. Student loan nondischargeability was extended by the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) to include for-profit and non-governmental entities. To avoid foreclosure or repossession, you must ask the bankruptcy courts permission to "reaffirm" your mortgage loan and lease agreement and continue to make your home and auto lease payments.
Bankruptcy can be costly
A notation that you filed for bankruptcy will remain on your credit report for seven to ten years, depending on the chapter you file. This notation could make it difficult to obtain new loans with favorable repayment terms. In addition to the increased cost of credit, you will be required to pay filing costs and attorney fees. Fortunately, under the BAPCPA, attorneys must disclose all their costs, enter into a written contract with the debtor, and disclose that an attorney is not necessary to file bankruptcy.
Bankruptcy affects more than your credit
Besides the obvious emotional issues involved with filing bankruptcy, it can also affect your ability to rent an apartment or obtain affordable insurance. In some fields, a bankruptcy could adversely affect your ability to gain employment or promotions.
Bankruptcy does not change your financial habits
Filing for bankruptcy may not solve your long-term financial problems. Lifestyle changes may prove to be more beneficial. The necessity of these lifestyle changes are now even more pronounced because under the BAPCPA, debtors seeking to erase all debts will now have to wait eight years from their last bankruptcy before they can file again.