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Ask Dave

What Happens When You File Bankruptcy?

Kim wants to know how far reaching the effects of filing Chapter 7 bankruptcy are.

QUESTION: Kim asks what the true long-term ramifications of filing a Chapter 7 bankruptcy are. Are they as bad as the attorney says? Worse, says Dave.

ANSWER: Declaring bankruptcy is worse than what the bankruptcy attorneys say it will be. Asking a bankruptcy attorney if it’s good to file bankruptcy is like asking a dog if it’s hungry. I guess it depends on how you define bad. Filing bankruptcy ranks in the top 5 or 10 things that can happen to a human; along with divorce, loss of a loved one, business failure and those kinds of things. It’s a huge psychological deal.

If you’re a psychopath who doesn’t care about your honor, integrity or reputation, then bankruptcy has no emotional impact on you. I went through it 20 years ago and it was honestly one of the worst things that’s happened to me in my life. There’s a big statistical correlation between bankruptcy and divorce; it’s horrible to a marriage.

You have to go into it thinking that it’s major surgery. This isn’t outpatient; you won’t be home in 2 hours and not worried about what happened. It stays on your credit bureau report for 10 years. Also, unless you’re willing to commit fraud, when you fill out an application that asks if you’ve ever declared bankruptcy, you must answer yes, no matter how long ago it was.