Circumstances in which filing is a sensible choice:
1. Believing that you can max out all your credit cards and get away with it by filing bankruptcy, effectively never having to pay back the money again. This will, in all probability be classified as fraud during the judicial process and even the trustee will scrutinize all your purchases right before filing. Obviously, there are legal repercussions to this since fraud is a criminal offence.
2. Negotiations have not helped – If the negotiations that you have tried to make with the creditors to work out a different repayment plans have not worked out because they refuse to budge from their position, then you as a debtor do not have any options left other than to file for bankruptcy.
3. You want to keep your IRA – It is indeed a valid concern for some people that the money that they have accumulated in their IRAs may be liquidated during the process of bankruptcy. But in 2005, the Supreme Court stated that the federal bankruptcy law will protect individual retirement accounts from the creditors. As such, you will now be able to hang on to your IRAs despite filing bankruptcy.
The negative aspects of filing bankruptcy:
1. Borrowing will become increasingly difficult – Filing for bankruptcy will make it difficult to obtain a line of credit (LOC) for upto several years. This could potentially be a big problem, especially since so many people have come to rely on “plastic” to make purchases and pay their bills. You will need to be mentally prepared to make changes to the lifestyle that you may have become accustomed to.
2. It may cause a mental/personal impact – People who file bankruptcy may start looking at themselves as failures of some sort, which may then lead to depression and the other myriad of problems that come along with it. They may also start feeling that they have no hopes of changing their situation and turning around their financial problems. In conclusion, individuals must take their feelings into account before filing lest it lead to personal problems and strained relationships later on.
3. Your credit score will take a dive – Individual filing for bankruptcy must know fully well that it will lead to a negative impact on their credit scores. As per the Fair Credit Policy, credit agencies can report a bankruptcy for upto ten years. The repercussions to this are that it may become difficult for you to obtain loans at a reasonable rate and also, it might have an impact on your career since a bad credit history is frowned upon by employers.