What is bankruptcy, and how you can avoid it. What exactly bankruptcy involves, how you can survive, and if there are any advantages to declaring yourself bankrupt. Pros and cons of bankruptcies UK.
When you hear the word “bankruptcy,” it might give you chills, but there are some advantages too that can help you deal with the debt without selling your soul.
Before we move to a deeper understanding of the consequences of bankruptcy, let’s clarify what the term “bankruptcy” means.
Bankruptcy, or chapter 7, known in the US, is a legal declaration that states that you or your business cannot pay any outstanding debt. Any asset you have will be collected and sold to raise money to pay your debt.
What is bankruptcy and how you can avoid it
Going bankrupt is a decision made after you calculated all your financial options. Even celebrities like 50Cent, Kerry Katona, and many others have declared themselves bankrupt after failing to repay their debts.
How bankruptcies work
Almost all your debts are written off when you declare yourself bankrupt because you cannot pay the outstanding debt. The process happens through a legal court and, in the UK, lasts one year.
Depending on your situation, usually, you can apply online to go bankrupt. The situation might be different and more complicated for businesses applying Chapter 7. A debt relief lawyer or a debt consolidation company is the best to ask for advice when in a difficult financial situation.
What happens if I declare bankruptcy?
As soon as you declare yourself bankrupt, you will lose every possession you have, such as cars, furniture, jewelry, and even properties. There can be exceptions, and you might be allowed to keep certain assets to sustain yourself, but that’s decided by a legal court in your state/country.
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You wanted a bigger house, yet, you didn’t know the cost. You wanted a posh car, but you didn’t calculate the expenses that come with it, insurance, services, taxes, and the high risk of theft and vandalism.
What is bankruptcy and how can you avoid it
Oftentimes, shopping is like therapy; it will boost your mood for a while, and it will wear off pretty quickly, just as the coffee effect does. When the joy of a shopping spree wears off, you will be left with money out of your pocket and debt. The golden rule to avoid bankruptcy is to live by your means. Avoid buying certain things that aren’t a priority.
Surviving bankruptcy can be tough and perhaps will teach you to become wiser with your finances. As I mentioned in this article, how to get your personal finances in order, the same rules apply when you are financially constrained.
Advantages and disadvantages of bankruptcy
Declaring yourself bankrupt can be a relief and a new start for some people. That is because as soon as you’re declared bankrupt, debt collectors will stop contacting you.
You will no longer have to deal with threatening texts, phone calls, and letters. After going through such a stressful process, you will learn more about managing your finances and, more importantly, not repeat the same mistake.
The disadvantages of bankruptcy
Unfortunately, the list of disadvantages of bankruptcy is very long, and some of the areas that will affect you, will never recover. Here are the main consequences of bankruptcy:
- Besides losing your possessions, being bankrupt puts several restrictions on you.
- You won’t be able to borrow more than $500 without notifying the lender about your bankruptcy
- Your credit score will be badly affected. In some cases, the fact that you declared bankruptcy would show on your credit references for up to six years.
- There is a possibility that your bankruptcy will be made public in the local newspapers.
- Even though most of your debt is wiped out, you may still owe money. You won’t be exempt from paying the following: federal and local taxes, child support, alimony, student loans, and criminal penalties.
- Renting a property might be difficult. Many agencies or landlords can refuse your application or require a guarantor if they see bankruptcy.
- You will have to deal with premium insurance prices
- You will go through many emotions and a sense of shame when declaring bankruptcy. There is nothing to be ashamed of if you end up in bankruptcy. Be it your finances, or your business, there are various reasons involved that affect your finances.
No need to explain to someone how you declared yourself bankrupt. No one will understand until they live through something similar.
How to avoid bankruptcy
Bankruptcy can be a complex and overwhelming process. The best way to avoid bankruptcy is not to borrow more than you can afford to pay back.
If you find it difficult to manage, your debts, or your business is struggling to survive, seek professional advice from an attorney or a debt management firm, and don’t carry this on your shoulders.
There are people trained specifically to deal with debt collectors or to help improve your financial situation. You have to take the first step to change your situation.
Disclaimer: This is a sponsored post by debtconsolidation.com. All the informations, tips, and advice you read should not replace professional financial counseling.