What are the Effects of Bankruptcy?

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  • Written By: wiseGEEK Writer
  • Edited By: O. Wallace
  • Last Modified Date: 15 January 2019
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The effects of bankruptcy can be numerous and may be felt for years after someone has filed for it. There are positive and negative consequences, with generally more undesirable outcomes. Nevertheless, sometimes declaring bankruptcy can be the only way to remain afloat, and not all people have other options to meet mountains of debt.

The logical consequence of bankruptcy is removal of debt, and it could be assumed that people walk away from this declaration debt free. This is not true. People may choose to retain some debt, when a judge agrees. For instance unsecured debt might be removed and a person could still maintain a mortgage. Certain debts can be discharged under most ordinary circumstances. In almost all cases, student loan debt is not relieved as one of the effects of bankruptcy.

Another thing people should be aware of is that creditors may have certain rights. If a person bought appliances with a department store credit card, it’s not a foregone conclusion that the appliances stay in the person’s home. Some department stores may seek to reclaim items that were purchased, to make up for losses.


Other store representatives make a show of reclaiming these things in order to attempt to get the creditor to pay some money back as bankruptcy is declared. It’s difficult to tell whether a creditor will serious attempt reclamation or is only fooling to try to recoup some lost money, and usually the only way to find out is to hold out and hold onto the purchased items. Legally, they will need to be surrendered if a creditor does show up. Note that most major credit card companies do not have this recourse.

One of the effects of bankruptcy that may be surprising is the near-instant offers of credit after it occurs. Many credit card companies offer high interest or high fee cards so that people can begin to reestablish their credit. Reading the find print on these offers is highly advised, since some advance very little in credit and charge huge yearly fees instead.

Most creditors are likely to not advance reasonable credit offers at this time, and moreover, the most devastating of the effects of bankruptcy is the amount of time this transactions remains on credit reports. In places like the US, bankruptcy does stay on credit reports for ten years. Provided people establish and keep a good credit history after it has occurred, this may not prove a huge obstacle, though it could especially impact things like obtaining a mortgage. Should people immediately get into debt again, it can have an enormous impact on any plans that require a credit score. Even something as simple as renting an apartment might become difficult if a person has bankruptcy showing on their credit report.

To minimize the effects of bankruptcy, it would make sense to use good judgment and discretion with credit thereafter. People should repay any debts still owing, and do so in a timely manner. New debts acquired after bankruptcy should be swiftly repaid, and even paying utilities and rent on time may help improve score. If possible, avoiding bankruptcy through debt restructuring may be a better choice, making it easier to heal credit score in the future.



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