Photo credit: WAYHOME studio / Shutterstock.com

Photo credit: WAYHOME studio / Shutterstock.com

Filing for bankruptcy, however warranted, can adversely affect your financial future. Some file because they have legitimate hardships due to medical issues, loss of income, or other circumstances and are advised to file bankruptcy when there may be alternatives available. Others file for bankruptcy after amassing debt obtained by frivolous spending or bad financial habits; basically using bankruptcy as a financial “Get Out of Jail Free Card.”  Most people walk away from the bankruptcy experience without learning any financial lessons or disciplines.

While bankruptcy is a legal measure that was designed to give those in dire financial circumstances assistance by relieving debt, protecting property or both, most creditors view this as an immense, negative strike against your creditworthiness and reliability. Bankruptcy can also affect how your personal character and integrity might be viewed by employers, leasing agents, and others in the business community. Because of this, one should not enter into the decision to file bankruptcy without doing their due diligence or being aware of the short- and long-term consequences. Some examples of how filing bankruptcy could adversely affect your credit include:

  • Negatively affecting your chances of purchasing a home.
  • It’s perfectly legal not to hire someone for having bad credit.
  • Getting denied from apartment leasing agents.
  • Being required to pay larger security deposits, or being offered a less desirable unit.

Here are seven credit behaviors to eliminate that may lead to filing for bankruptcy:

  1. Avoid poor spending habits: To help deter this behavior, keep tabs of your daily spending habits. By doing this, you should be alerted to when your spending starts to spiral out of control. Eventually, actions can be taken to stop it before it happens.
  1. Avoid not having an emergency fund: Most financial experts suggest saving six to eight months’ worth of your monthly expenses to carry you in case of an emergency.
  1. Avoid not having a solid financial plan: The word “budget” is a dirty word to some, but sitting down and determining what money needs to be allocated for basic and discretionary spending is crucial for financial health.
  1. Avoid not taking advantage of money management tools: There are plenty of apps such as Mint (mint.com) and Goodbudget that track spending and calculates how much income has been spent and what should go to retirement, savings, etc.
  1. Avoid not knowing the ramifications of filing for bankruptcy: Filing bankruptcy can hinder a person from acquiring things that they may want in the future, such as mortgage loans for a specific amount of time or employment with certain employers. Bankruptcies can also denote a negative implication of one’s character.
  1. Avoid not researching options other than bankruptcy: Examples include auto loan companies having an option to push a payment to the end of the loan to help avoid late or missed payments. Also, some credit card companies offer disability insurance to cover payments in case of certain emergencies.
  1. Staying in debt and not resolving to dig yourself out of debt: It takes a lot of determination and patience to methodically pay off debt. It means designing a plan, cutting back on spending by making sacrifices, and concentrating on the future outcome of having stable, healthy finances.

In conclusion, filing bankruptcy is necessary in certain situations; please do your due diligence with creditors to determine if it is the best or only option before filing. Also, have a financial plan in place after the bankruptcy process.

 

Ebony Cochran

Senior Consultant at Blackwood Credit Services..... The Debt Survivor...... Curator of the #testimonyreport