Non payments of dues often happen with many of you. Various unanticipated events such as divorce, sudden hospitalization of a family member, loss of employment, pay cut etc put you into serious financial troubles. It becomes tough to maintain the same standard of living and life becomes miserable for you. In such situation, one option available before you is to file bankruptcy. Filing bankruptcy implies that this is not the end of your financial life but it means that you are indeed in a very poor financial situation.
Chapter 7 helps you eliminate certain debts completely, whereas Chapter 13 offers you a repayment plan. Though this legal instrument has certain benefits associated with but it has its share of drawbacks too. You need to have proper understanding about these drawbacks of this mortgage tool. Here we discuss about its 3 major drawbacks.
1. Bankruptcy harms your credit
The most serious drawback against bankruptcy is that it hurts your credit standing very badly. Your credit score gets reduced by 100 to 200 points. A Chapter 7 filing shows up in your credit report for nearly a decade. Chapter 13 filing stays in your credit report for nearly 7 years. You can’t start rebuilding your credit immediately after discharge. It takes around 6 months to 2 years for credit improvement measures to make any impact on your credit score. During this period, you really face it very difficult to get approved for a new loan. If you are able to get approved for a new loan, then you have to pay quite a high rate of interest.
2. Limitations in loan discharge
Loan discharge through bankruptcy filing has some serious drawbacks. If you have taken out a home mortgage loan or a car loan, then that loan can be discharged through this process. However, in case you have taken out a student loan, then you can’t take resort to this mortgage tool to get the discharge. This is indeed a very serious drawback. Many students take out student loan under the presumptions that upon the completion of their studies they will get job and will be able to repay the student loan. However, sometimes they do not get the job and find it tough to repay the student loan. They can’t even file bankruptcy for discharge of student loans.
3. Your home is on the line of fire
If you are facing really hard to repay your home loan and are almost about to get sued by your lender, then you can go for Chapter 7 filing. Here you have to surrender your property or asset, which is not exempt under the Federal laws, to the authorized trustee. The trustee is responsible to sell or part-sell your property to pay to your lender. So, here chances are there that you may lose your assets.
These are indeed very serious drawbacks. Bankruptcy should be your last option. Before filing for it, you should explore the other options available before you.