It's Not Cool To Be Bankrupt

By: Stuart Laing
Submitted: 2007-01-17 16:10:11
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All over the world, countries are relaxing their laws on bankruptcy. So in turn, many people are relaxing their efforts to avoid bankruptcy. In fact, in some developed countries it's now highly fashionable to have at least one bankruptcy under your belt.

Recent statistics show that in the UK, a third of personal insolvencies involve people under the age of thirty. And in the US, many people consider that you're not a real entrepreneur until you've been through the bankruptcy courts.

Far from being the stigma of previous generations, bankruptcy is now just another "life experience" or "lifestyle choice" that people want to make.

Okay, the period of bankruptcy (before most of the restrictions are lifted) is much shorter. In many countries it's as short as one year.

And this shortened discharge period is designed "to encourage entrepreneurial spirit and remove the stigma of bankruptcy"

That sounds great, but is bankruptcy really such an easy option?

Right, time for a dose of reality.

Bankruptcy is not cool. It's not something to be proud of. It's restrictive, humbling and for a year or two at least, you'll be left with all the financial and legal capacity of a child.

If you have any secured debt, such as a mortgage on your house, it will be repossessed. Any other non-essential possessions that you "own" will also be taken from you.

But that's just the start of your problems. Bankruptcy can affect your immediate and long-term future

1) Employment Prospects

In certain professions you'll lose your job (eg accountant, legal, financial, law enforcement etc). And people with severe financial problems are barred from working in positions of responsibility because the general fear is that they will become much easier to bribe. In addition to which, bankrupts are not able to hold certain offices (eg comany director, political offices).

2) Property

As I said, it's likely that you'll lose any property that you "owned" and you won't be able to borrow any money during your period of bankruptcy.

Bankruptcy will delay you getting onto the property ladder. And with property prices rising as fast as they are at present, these extra couple of years might mean they you miss the bottom rung altogether.

And even once you bankruptcy is discharged, you'll find it difficult to find a lender who is prepared to grant you a mortgage. And even if you do, the interest rate will be much higher than normal in order to reward them for the added risk that you pose to their money.

The chances are that you'll also find it difficult to rent a flat/house with your credit record. Either that or the rent will suddenly have increased.

3) Financial

Opening anything more than a simple "childs" bank account will become extremely difficult until your credit record is rebuilt. Getting a credit card or any other type of personal loan will be almost impossible. Either that or you'll be charged a much higher rate of interest, that's assuming you can find someone who is prepared to lend you money.

4) Other

Other areas of your life will also become much more complicated. This includes renting a mobile phone, obtaining goods on interest free credit and even taking out an internet subscription.

So when you add all that up, bankruptcy is not always the easy option, despite what the new bankruptcy laws around the world appear to indicate.

Dealing with your finances in a reckless manner and then using bankruptcy as an escape hatch is also extremely selfish. Nearly everyone who becomes bankrupt costs their creditors money.

And how do lenders recoup these losses? Easy! Other people who owe them money are charged more in terms of interest, fees, penalties and other charges.

In other words, everyone who becomes bankrupt makes it harder for you to get out of debt. They also make it harder and more expensive for everyone to borrow money.

So before you give up on your debts and expect bankruptcy to make it all go away, think long and hard about whether you want to go down that route. It might not be as quick or as easy as it has been made out to be.

And above all, getting out of debt without resorting to bankruptcy will make you a stronger person. Avoiding bankruptcy will prove to youself that you can cope with financial problems. And it will also increase your chances of moving on to create some financial security in your life.

Using bankruptcy to escape your debts won't teach you anything about money or how to avoid/get out of debt. You're more likely to get into debt problems again. And if you suffer a second bankruptcy many countries will impose a tougher set of laws. You might not escape after just one or two years.

by Stuart Laing

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