8 Long Term Effects of Bankruptcy On Your Life
Do you think filing for bankruptcy will solve your problems? Not quite. In fact, bankruptcy will inevitably impact your life far more than actively working to address your debt, especially if you know that there is a good chance that you could face the doom and gloom of insolvency.
Indeed, there are numerous effects of being bankrupt, from your credit rating to having your personal information in the public domain. This is something you should do your best to avoid. Here are the eight effects of bankruptcy:
1. You Lose Value
Under bankruptcy law, you are granted certain rights. For instance, you are permitted to keep basic household assets, such as household furniture or all your clothing. Sounds good, right?
Well, it isn’t so grand when you learn that you lose specific non-exempt status.
Here is a list of things you will give up in bankruptcy:
- A tax refund in the year you filed for bankruptcy.
- Equity in your home.
- Contributions you have made to your RRSP in the last 12 months.
- A new automobile without any loans against it.
See, was that $800 iPhone worth losing your car or those RRSP contributions? Nope.
2. A Credit Report Note
For the six years, you will have a note on your credit report that states you have filed for bankruptcy. Should you file for bankruptcy a second time, then you will have another for 14 years.
Good luck trying to find an apartment in any of the major Canadian cities if the property managers see this. Or, good luck accessing credit (see below) if your application is submitted and the lender comes across this note.
3. Monthly Obligations
Throughout the term of your bankruptcy, you are mandated to complete outlined bankruptcy duties.
For instance, you are required to report your income to your trustee each month. And this is bad news if your earnings surpass a level established by the federal government. So, in other words, if you have a higher income, then your bankruptcy may be a lot more expensive than originally planned.
4. Not All Debts Are Eliminated
It is true that your unsecured debts – payday loans, credit cards, and bank loans – are eliminated. However, your secured debts – a home mortgage, an automobile loan, and student loan – are not wiped away. Also, if you owe alimony, court fines, or child support, these will not be vanquished.
So, you have some debts gone, but some of the bigger ones get left behind to grapple with.
5. Going Public
Do you care about your privacy? Well, during your bankruptcy, you can say goodbye to it because a lot of your personal information will enter the public realm. So, everything that you file with the court that contains your personal financial information can be accessed by the general public.
There are certain protections, however, such as using only the last four digits of your Social Insurance Number or listing minors by their initials.
6. Filing for Bankruptcy is Costly
If you’re broke, it can be expensive to file for bankruptcy. When you factor in the application process, attorney costs, and court fees, you can spend around $2,000 – some bankruptcies are cheaper (perhaps $1,000).
The ironic thing about this is that you may need to borrow just to file for bankruptcy!
7. Access to Credit Will Be hard
For the next six to 14 years, accessing credit will be difficult. Without a high credit score, you may not be able to get a mortgage from a reputable bank. You may not be able to lease an automobile. You may not be able to receive excellent credit cards.
Essentially, any type of credit will be hard to come by just because you are now a risky borrower. This is rough, huh? Well, you can avoid enduring the wrath of bankruptcy, as long as you the will to do what it takes. Are you up for it?
8. You Understand the Value of Money
Once you have filed for bankruptcy, you start appreciating the value of money more and more. You will definitely not want to repeat your monetary mistakes again. To avoid going bankrupt for a second time, here are several tips to avoid insolvency:
- Create a Budget: It might be a trope by now because all of the personal finance gurus on television, on the radio, and on the Internet say the same thing: Create a budget and stick to it. But there’s a reason why it is a cliché now: It is true. As long as you follow your money, learn where your money is going, and keep track of every pecuniary matter, you can stay out of debt.
- Put Your Plastic on Ice: The pieces of plastic in your wallet are dangerous. They will get you in trouble. Why? Because of the temptation. It is a coquettish inanimate object that tells you that you have $2,500, $5,000, or $15,000 to spend now and pay back whenever you feel like it. Don’t fall for the monetary siren!
- Keep Track of Debts: Similar to a budget, it is a good idea to keep track of your debts. If you get into a little bit of trouble, then you need to ensure you know how much debt you have, how much it is costing to service, and how much it will take to pay back (with interest). If you do this, then you can avoid digging yourself into a deeper hole and facing the prospect of bankruptcy.
Bankruptcy is not fun. It can feel like the weight of the world is off your shoulders because now you are not obligated to cover that $25,000 credit card tab anymore. But there are numerous effects to keep on the lookout for, otherwise it will be too late to do anything about it. Remember, being discharged from bankruptcy can take years, so think twice about buying something you can’t afford.