For people who have gotten in over their head in debt, filing for bankruptcy may seem like a good solution to their problem. However, a bankruptcy has several consequences that you need to be aware of before proceeding with one.
Limited Cash Flow
A bankruptcy should only be considered as the last resort for most people. Depending on the type of bankruptcy that is filed, one of the consequences is a limited ability to control cash flow. If you file a Chapter 7 bankruptcy, then your eligible debts will be may be eliminated without needing to repay your creditors.
If a Chapter 13 bankruptcy is filed, then your debts will be reorganized, so you will be obligated to repay your debts for three to five years, depending on your income. This means that all of your disposable income will go toward your debts, which could severely limit how much cash you have in your pocket each month.
Under a bankruptcy plan, you may have to sell some of your assets, including property, to pay off your debts. You are allowed to keep certain assets, like a house, if they are under the exemption limit when you file a Chapter 7 bankruptcy.
If you file a Chapter 13 bankruptcy, you will be allowed to keep your property no matter how valuable it is because it is a reorganization of your debts and you will repay them. Since bankruptcy laws vary from state to state, you should consult with a bankruptcy lawyer San Diego to talk about which type of bankruptcy would be best for your situation.
Filing for bankruptcy will also affect your credit history for up to 10 years, making it difficult to reestablish your credit, buy a home or a new car. Bankruptcy should only be done as a last resort.