Bankruptcy is not a pretty picture, it is basically the
end of the rope for someone who's debts have completely overtaken them. Bankruptcy
causes creditors to legally stop trying to pursue debts owed to them from you.
It essentially eliminates any debts owed. Those who are hopelessly burdened
with debt can get their debts wiped away. Sometimes this becomes the only way
out of a grim financial situation. What claiming bankruptcy does is gives you a
clean slate to start from. This actually seems to be a relatively popular option
for some. But not so fast, there are downsides obviously for claiming such a
thing. Your bankruptcy will stay on your credit report for up to 10 years.
You
may be able to
get a mortgage during this 10 year period from a lender but it will end up costing
you more than the average person. Your credit has been damaged and no lender
will take the same risk with you as with people who do not have a bankruptcy
on their report. Perhaps you take out a mortgage loan for $300,000. You will
be paying a higher interest rate than what you would have without the bankruptcy
on your report.
For arguments sake lets say instead
of the 6% the normal person would be paying you have to pay 8.5%. Now this
seems rather reasonable to you considering your past, but lets look at the real
cost difference. A $300,000 mortgage loan could cost you $1933 per month for
25 years at 6%. The same amount paid at 8.5% could cost you $2415 per month. The
difference is over $144,000 over the life of the mortgage. So you see, bankruptcy
can really cost you in the long run.
There
are 2 different types of bankruptcy. One is Chapter 7, the other Chapter 13. Chapter
7 is sometimes referred to as "Straight Bankruptcy" It is essentially a
liquidation process. Basically the debtor gives over non-exempt property to whomever
is processing the bankruptcy and they then sell it off to pay the creditors
what they can. Usually the debtor does not have assets left so this approach
gives the person a quick new slate. |
