Bankruptcy is one of the last options one has when a person’s finances are near or close to ruin. There are many reasons why a person or business goes bankrupt, some go bankrupt because they are a victim of circumstance, others because they did not manage their money correctly. When deciding whether to go bankrupt, you should consider the pros and cons.
The Pros
Bankruptcy can be extremely helpful to many people and give them a fresh start, as well as piece of mind. Many families are haunted by debt and constant calls from collecting agencies. For instance, many people go bankrupt due to reasons beyond their control such as a serious injury, illness or being laid off. If you find yourself in a financial hole with tens of thousands in debt and no way to pay it off, bankruptcy should be considered as an option. For instance, if you are seriously ill and owe 500K in hospital bills, unable to return to work and being hounded by creditors, bankruptcy can be a legitimate option to give you peace of mind and a fresh start.
It should be known that bankruptcy is only temporary. In 10 years, the bankruptcy will no longer show up on your credit report and hopefully by that time, you will already have established credit and have managed your finances correctly. While you might have to wait for a few years to buy a home or to get a loan for a new car, the effects of bankruptcy don’t last forever.
The Cons
Bankruptcy should not be taken lightly. We all would like to get rid of our debts with one swipe of the pen, however bankruptcy has many consequences. For one, you will probably not be able to receive a mortgage, car loan or personal loan for a few years. If you are able to acquire a loan, you will surely pay extremely high interest rates. In addition, you might not be accepted for a job or an apartment due to your bankruptcy on your credit report.
You should not consider bankruptcy if your debt is small and you are able to pay it off. For instance, if you owe $20K in credit card bills, instead of going bankrupt, you should consider tightening your belt and spending the next few years paying off your debt.
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