Bankruptcy: The Implications

Bankruptcy is usually the very last option for people who are in debt up to their ears and can’t find any other way of getting out of debt. Most people are justifiably scared of filing for bankruptcy. There are a few things that should be kept in mind, and a few questions you should find answers for when you look at the implications of filing for bankruptcy. Some of the common fears are justified, while others are just myths.

Contrary to popular belief, bankruptcy does not put you in a rut when it comes to borrowing money from financial institutions. Although the borrowable amount will be limited, you’ll find that many lending institutions are willing to assess your overall situation and loan you the money you need. As it’s a big risk for them, they’ll usually impose higher interest rates. So, even though you might have been misled to believe that you can’t get credit after bankruptcy, it’s simply not true.

Another fear people have is mortgage and home ownership. You might wonder if you can find a lender to give you a loan or approve your mortgage if you file bankruptcy. The answer, again, is yes, you can, but you might need to show a good track record of eighteen months to two years to get this. Contrary to popular belief, lenders do not steer completely clear of people who have ever filed for bankruptcy.

Finally, what about your pension savings? How will they be affected by your bankruptcy? Hopefully, not at all. Most pensions and savings plans are exempt from your estate upon bankruptcy, so they can’t be liquidated to repay your debts. However, there are exceptions to this rule. Outstanding tax liens are not generally forgiven after bankruptcy, so any taxes owed may be attached to your 401K, IRA, or other savings plan. You should bear this in mind before considering bankruptcy.

Before you file for bankruptcy, it is always a good idea to spend some time with a good financial advisor who can let you know all the facts and how they will affect you. Once you get all the facts, you can make your decision.