What Are the Negative Effects of Filing Bankruptcy?

While the aim of any bankruptcy proceeding is to provide debt relief to overwhelmed consumers, it is important not to lose sight of the possible negative effects of a bankruptcy. Assets can be lost, reputations harmed and credit-gaining ability harmed for years to come. However, in most cases, bankruptcy provides more positive benefits than negative effects.

Assets

In a Chapter 7 bankruptcy, the debtor is asking for debt forgiveness and will likely lose assets such as savings accounts, expensive jewelry, home equity and vehicles. Chapter 13 debtors can usually keep their assets since they repay almost all of their obligations.

Credit Effects

Chapter 7 bankruptcy is reported on consumer credit reports for 10 years, and Chapter 13 cases are noted for seven years.

Public Record

It is important to be aware that bankruptcy is a public record which anyone could find even after the bankruptcy is taken off credit reports.

Publicity

Some newspapers print the names of people filing for bankruptcy, and may even write a story about the situation if the person has enough prominence in the community.

Employment

Some professions, such as banking or government jobs, may be more hesitant to hire someone who had to declare bankruptcy. Firing someone due to bankruptcy is almost always illegal.

Resources

• U.S. Bankruptcy Courts