How can Bankruptcy Compromise Your Financial Future?
We all know how bankruptcy can compromise our financial future. This is not something that you can shrug off easily. This is why experts are encouraging everyone to avoid it at all cost. Before you file for bankruptcy, you are encouraged to explore other options for your debts. You should not be too quick to file a petition because it will leave you financially scarred – at least for a couple of years.
According to the data from the Hong Kong Monetary Authority, the bankruptcy petitions during the first half of 2015 stayed relatively low. While this is good news, it might not stay low for long. Based on the forecasts, the housing market may experience a drop in prices. That could mean trouble for home-owners. They may be left with a high mortgage on a house that is lower than the value that it was originally purchased. Since a real estate property is the biggest asset that we have, a decline its value will affect our financial standing significantly. Not only that, a mortgage is one of the biggest loans that we can borrow. If your payments are suddenly compromised, that could easily lead you to declare yourself bankrupt.
If you know that your finances will be put in danger of bankruptcy, you have to come up with a plan to avert the situation. This petition can compromise a lot of things about your financial future.
Different ways your finances are compromised with bankruptcy
There are 4 different ways that your finances will be compromised by bankruptcy.
You can say farewell to your career in the financial industry. If this is where you work, you will be forced to tell your employer that you filed a petition for bankruptcy. Not only that, lawyers and agents (real estate or insurance) will not be allowed to practice their profession. Of course, this will be until the bankruptcy proceedings are done. Once it is over, you should not be kept from practising your profession. However, if you were laid off by your employer or the firm you work for, finding a job replacement may prove to be difficult. That can seriously compromise your monthly income.
The second way that bankruptcy can compromise your future is through your business opportunities. You will not be allowed to set up a business or be a director of any company. At least, this is true until the bankruptcy process is over. But then again, just like a job search, it might be hard for you to get financing for a start-up business. You might also have a hard time finding a partner who can trust you with money. After all, bankruptcy usually means you are not good at handling money.
Any asset that you worked hard to acquire will be gone. It will be liquidated and used to pay off the debts that you owe. If you own a house, you will lose that. The same is true for any vehicle that you own. You will find yourself back to square one. Since everything is gone because of bankruptcy, you need to build your assets once more – at least, if you plan to reach a more stable financial future.
The next thing that you will compromise with bankruptcy is your credit report. According to TransUnion, a credit report holds your credit activity. It shows your behaviour as a credit borrower. If you have bad credit habits like not paying your dues on time, this will be reflected on your credit history. This will make lenders and creditors hesitate to approve your loan or credit account. In case they do approve your account, you will be given a high-interest rate. This is how they can protect themselves from the possibility that you will not pay back your dues.
Rebuilding credit after bankruptcy
Improving your credit history is the best way to recover from the effects of bankruptcy and keep it from ruining your financial future. TransUnion also reported that the taint of bankruptcy on your credit report will stay there for the next 8 years. This means when you apply for a loan to accumulate assets (e.g. mortgage), the lender will either disapprove your loan or give you a high-interest rate on your loan. Neither options are good for you.
This is why your first step should be to rebuild your credit after bankruptcy. Here are some tips that will help make this happen.
- Continue to use credit. You cannot rebuild your credit history if you stop using credit. You need to keep borrowing money – but make sure you practice the right credit habits.
- Pay your dues on time. This is one of the habits that you need to focus on. This has a great influence on your credit report. By doing this alone, you can give you credit score a huge boost. Of course, this is not the only thing that will help you.
- Keep your balance within 30% of your credit limit. If your limit is HK$50,000, your balance should never go beyond HK$15,000. This is how you maintain a good credit score. When you reach 30%, do not use credit until you have lowered your balance.
- Hold off closing credit accounts. If you can help it, do not close credit card accounts. If you are buried in debt, this might seem like a good idea to keep you from acquiring more. But this will not help you credit report. Keep the card hidden so you will not be tempted to use it – but do not close it.
In the end, practising the right credit behaviour will allow you to rebuild the financial future that bankruptcy compromised. While it is devastating, being bankrupt is not the end of the world. There are people who have risen from the ashes of bankruptcy to be financially successful. Use this event in your life to help you make the right decisions from hereon. Sometimes, the best lessons come from the gravest of mistakes. When you reach the bottom, like what bankruptcy will make you feel, remember that there is nowhere else to go but up.Recommend0 recommendationsPublished in