Bankruptcy is that particular legal status of a person, a company or other entity that can no longer repay his or its debts to creditors. Even though some people may affirm that bankruptcy also has a few advantages, the list of disadvantages is definitely much longer. For this reason, you should think of bankruptcy only as an ultimate last resort, after you have used any other alternatives. Learn the importance of avoiding bankruptcy below.
Main Disadvantages of Bankruptcy
No matter if it belongs to a person or business, this status triggers a wide range of disadvantages, which will have a major negative impact on someone’s reputations. Furthermore, there are also practical drawbacks that will be experienced for sure by the person in this situation. Some of them are immediate while others will come around later.
First of all, you should be aware of the fact that you will lose most of your proprieties that are valuable. You will be allowed to keep only the assets you need for a basic standard of living. Anything you own and have a high value will be sold in order to pay the money to your creditors.
Another aspect you should consider before declaring bankruptcy is that you will encounter plenty of difficulties when trying to access credit. There is a specific limit of the credit you are able to obtain, but your chances are significantly lowered by your status, as there are only a few banks which take the risk to borrow money to a bankrupt individual. You may think that soon after getting rid of the bankruptcy, this problem will end. In fact, this issue will haunt you for seven years as the bankruptcy record has to be added to your credit report and remain there throughout this period. Also, according to the policy of some banks or finance companies, your access to your credit cards can be banned.
Moreover, there is a permanent record regarding this aspect that may be accessed by anyone who pays a small fee. They will be provided with an electronic index of these records, also referred to as the National Personal Insolvency Index.
When it comes to reasons why you should be avoiding bankruptcy, another important aspect is that this status will lower your chances of getting employed. In fact, even if you would convince an employer, there are particular industries with strict rules regarding this aspect, and they need to obey them and not hire you.
Less Extreme Alternatives to Bankruptcy
A convenient alternative is a debt agreement. This option is available for those who have not filed a bankruptcy form and consists of a debt settlement arrangement between you and your creditors. This will allow you to settle affordable debts, for example by freezing the interest rate.
Another less extreme alternative is a consolidation loan, which will help you manage your current debts much easier.