Bankruptcy Consequences

Financial difficulties are very easy to get into these days, and with them comes the awful feelings of stress and worry of not being able to pay your way. Bankruptcy is avoided as the ultimate financial failure, as well as the fear of bankruptcy consequences.

As things get worse many people are afraid and withdraw into themselves, and eventually the creditors close in and suddenly court appearances loom large.

Bankruptcy affects many people these days as the world recession has bitten hard. Indeed, many would reason that bankruptcy no longer has the social stigma that it once had. For some it has become a "badge of courage", the fact that they have tried and failed in business for example, means that they command a certain respect, with blame being placed squarely at the feet of the  banks, who continue to overpay themselves, whist starving business of the capital it  needs to grow and prosper.

Whatever the reason, bankruptcy often holds out the promise of removal of debt, of restarting one's financial life with a clean slate.

The promise of a new financial future, combined with the stress of being in an impossible financial situation, are often the reasons for declaring oneself bankrupt. However, little thought is often given to the bankruptcy consequences, which can be severe.

The first and most obvious consequence of bankruptcy is a destroyed credit rating. Your rating will take some time to recover, but in the meantime credit cards, loans and even overdrafts are likely to be out of the question.

This may be seen as a good thing, as it was credit that likely got you into trouble in the first place, but the reality is that a life with no credit whatsoever can be awkward to difficult. Surprise bills, like your car breaking down for example, can't just be put onto a credit card and paid later; you have to pay immediately in cash.

It's not impossible to get some sort of credit, but you'll pay an extortionate interest rate as a bankrupt.

A little known problem is that if you have given any financial gifts in the year preceding your bankruptcy, these may have to be paid back to the court trustee. This rule is in place so that people cannot commit fraud, by giving away substantial amounts of cash, then claiming bankruptcy and ridding themselves of debt, before having the money "given away" returned.

Ironically perhaps, the way to restore your credit rating is demonstrate you can repay credit, in other words act responsibly.

One way to do this is to obtain a secured credit card. This is a card where your credit limit is determined by the amount of deposit you give to the card provider.

Whilst it may seem as though secured credit cards arfter bankruptcy are pointless and you may as well just used cash, the point is the credit agencies will see your spending and repayments on the card, but they don't see you spending cash!

If you get a secured card, be sure to check that the card company is registered with the bureaux, because if they are not, the card will have no impact on your credit rating.

Bankruptcy puts you back in charge of your finances, but it is important to develop some kind of strategy to overturn some of the bankruptcy consequences after discharge.