Side Effects of Bankruptcy

Bankruptcy is a very real alternative for people who have more debt than they are able to pay. There are many circumstances that can lead up to bankruptcy, and understanding the side effects of bankruptcy is an important factor in the decision making process.

What is Bankruptcy?

In a nutshell, bankruptcy is a legal option that is available to individuals, couples and businesses that are unable to pay off debts owed to their creditors. The benefits of bankruptcy include temporarily stopping foreclosures on homes, restoring utility services, stopping repossession of automobiles, ending harassment from creditors and stopping the garnishment of wages. Although these seem like great ways for people to get a fresh financial start, it must be understood that there are many side effects of bankruptcy that can be very frustrating at times. Bankruptcy cannot extinguish secured debts, meaning that people must continue to pay for homes or vehicles in order to keep them.

Renting a Home

One of the biggest side effects of bankruptcy is the inability to find a rental home or apartment as easily as before. Although this can pose a problem, there are several things that can be done to make the process simpler. First, it is important to remember that not all landlords require a credit check. As long as renters can provide a steady proof of income and ability to pay, this is all that is needed. Even though some rental property management companies and landlords do require a credit check in order to rent property, bankruptcy is not always a deal breaker. Most landlords have stipulations in their lease agreements that protect them from losing money in the event of non-payment.

Opening a Checking Account

Opening a checking account after bankruptcy can prove difficult if people are searching in the wrong places. One of the side effects of bankruptcy is the loss of access to rewards programs and high-interest accounts. There are checking accounts for those with not-so-perfect credit histories, however, and these should be utilized to their full potential. Often called ‘Second Chance Checking’ accounts, these are available to almost anyone who has filed bankruptcy on bank debt in the past. These account types are not interest-bearing and they are often void of rewards and perks that other account types offer, but they do provide people with the basic necessity of a checking account.

Buying a Car

Buying a car after bankruptcy can also prove to be a very difficult endeavor and one of the hardest side effects of bankruptcy to deal with. There is no doubt that bankruptcy is like a brick wall for anyone trying to obtain an unsecured auto loan, but there are other options available. Rent-to-own car dealerships can be found all over the country and they often do not require credit checks in order to sell vehicles. Instead, the buyer is required to make weekly payments at a much higher rate of interest than a standard loan. Just like other dealerships, the vehicle prices and interest rates are often negotiable depending upon the customer’s income and ability to pay.

Paying Child Support

The inability to pay child support is one of the most concerning bankruptcy side effects. This is because child support payments are still required to be made during the bankruptcy process, regardless of other obligations. In many bankruptcy proceedings, judges will make special considerations for debtors that have child support obligations. In order to do this, the judge must often relieve some of the debtor’s other obligations in order to ensure that they have the ability to continue making timely child support payments. There are no laws in place that can temporarily put child support payments on hold, but there are some stipulations that make child support easier to pay.

Getting a Divorce

Getting a divorce after a bankruptcy brings about an entirely different realm of financial questions and issues. When this occurs, it is best for both parties to take adequate precautions to ensure that they are not unfairly dealing with the side effects of bankruptcy on their own. No matter what type of bankruptcy was filed, both parties remain equally responsible for their share of the debts, and both parties’ credit histories are affected. Debts that were incurred as a couple will affect both parties, but individual debts will remain assigned to the single debtor. Child support and alimony payments or repayment due to fraud or theft remain the responsibility of the payee.

The side effects of bankruptcy can be difficult to understand and deal with, but there are ways around many of the most difficult ones. Although people who have filed for bankruptcy will not be eligible for many unsecured loans, they often have the option of paying higher interest rates to obtain things on credit.

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1. Child Support after Bankruptcy