Declaring Personal Bankruptcy

In many countries, personal debt is at an all-time high. Consequently, personal bankruptcy is becoming increasingly common. Individuals, who find themselves with a heavy financial burden that seems insurmountable, should consider bankruptcy as a last resort. If bankruptcy is the only solution, be aware of the consequences that may arise from your decision.

Two types of bankruptcy

When declaring bankruptcy, there are two options: consolidation bankruptcy or straight bankruptcy. If you file for consolidation bankruptcy, your debt must be repaid within 3 to 5 years and the bankruptcy will appear on your credit rating. For this reason, many people choose to file for straight bankruptcy or commit themselves to another type of debt reduction program.

Long-term consequences

Declaring personal bankruptcy has several long-term consequences that should be well considered before taking that step. A significant one is that bankruptcy will appear on your credit rating for at least 10 years. This means that it will be difficult for you to take out a loan or even buy a car in the future. In addition, when you are in the financial position again to buy a car or home, your interest rates will be high.

Other consequences

When filing for personal bankruptcy, it is likely that you will lose some of your personal property in the process. Be also aware that you may have to pay costly legal fees. During the repayment period, the court will place restrictions on how you may spend your money, and may automatically garnish your wages for a set amount. In both cases, there is a significant loss of personal freedom.

Not all debts are eliminated

Although you have filed for bankruptcy, there are a number of debts that are not eliminated. Specific bankruptcy questions regarding what debts cannot be eliminated should be directed to a professional, but in general, student loans, outstanding income taxes, child support and alimony remain your responsibility and must still be paid.