What is the Downside of Filing for Bankruptcy?
When we see our clients after they file bankruptcy, they look better. They tell us they feel better, they're more relaxed. And they all say the same thing: Why didn't I do it sooner?
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Transcript
An important question that people ask about bankruptcy is what is the downside to filing bankruptcy? The biggest downside of bankruptcy is that it's on your credit for 10 years. And in addition to that, there are some loan programs like conventional SBA loans that you do not qualify for after you file a bankruptcy.
The biggest initial impact is the negative effect it has on your credit card. Now ironically, we've had some clients where they had so much debt and so many negative credit references that when they filed bankruptcy their credit actually went up a little bit. But for the most part, your credit is going to take a drop. Nobody really knows how much exactly anytime. You figure a hundred points. Over time you can rebuild that, get it back up to where it was. And we can help you do that. We can show you how, we can tell you how but that's the downside, the technical aspect of a bankruptcy being on your credit report and the effect that it has on your interest.
Now, most folks who file bankruptcy aren't in a position to borrow more anyway so it doesn't matter a lot, but a bankruptcy will cause you to have to pay a little more interest when you go to buy a car, a little more interest when you go to buy a house. That effect diminishes over that 10 years, if you take the right steps but there's a cost in the cost of borrowing to filing bankruptcy. Now it doesn't mean you can't borrow. When you file a bankruptcy you're going to get offers to get car loans. And after about a year, you can get yourself a home loan. It's not going to be the best rate, but you can do it.
One of the downsides that folks actually think is the emotional downside that you'll feel like a failure. And in my experience, nothing could be farther from the truth. Most folks do the emotional damage to themselves, leading up to the bankruptcy. They feel like a failure or they feel like they're trapped, they feel like they're stuck, they feel stressed out. When people file bankruptcy, it's actually a release. They get emotional relief and emotional benefit from filing a bankruptcy and realizing that all the stress that was piling up with the bills that weren't getting paid and you know jumping from bill to bill and worrying about having enough cash after bills came out of your paycheck to pay for your family, to cover everything else. Once that's over, you absolutely will feel better.
When we see our clients after they file bankruptcy, they look better. They tell us they feel better, they're more relaxed. And they all say the same thing. Why didn't I do it sooner?