An individual who has decided to file for bankruptcy has likely spent some time considering their options already. They may face aggressive collection efforts. They may worry about vehicle repossession or foreclosure. A creditor may have served them with paperwork for a debt-related lawsuit.
Any of those circumstances could inspire people to file for bankruptcy to protect themselves. A successful personal bankruptcy filing interrupts aggressive collection efforts and can eliminate certain financial obligations. When a person dealing with financial hardship shares their life with others, their financial challenges can affect their inner circle. The children and spouse of a bankruptcy filer may also experience certain challenges.
What impacts can a bankruptcy filing have on others within a household?
The negative consequences
Many people experience a degree of shame whenever there are financial issues for their families. Young adults and teenagers may feel embarrassed about a parent filing for bankruptcy, especially if classmates learn about it. A spouse may also feel a degree of shame or embarrassment. They may also be angry or anxious if they believe that the bankruptcy could have consequences for them.
The adjustment to life during bankruptcy can be a challenge. Particularly in a Chapter 13 case, the entire family may have to adjust to a much less flexible budget. The immediate loss of revolving lines of credit can also be a challenge, as people can no longer use credit cards to cover costs that they cannot afford outright.
The positive impacts
Everyone in the family may obtain some benefits from a successful bankruptcy filing. The collection calls that leave everyone anxious about answering the phone or getting the mail may stop as soon as the courts grant an automatic stay. The elimination of certain debts through the discharge at the end of the process can make it easier to pay bills on time and to afford basic needs for everyone in the family.
Additionally, people may feel grateful when one person takes responsibility for financial challenges and seeks to address them as soon as possible. A timely bankruptcy filing can be an important lesson in making use of protective systems for children, who often learn from their parents’ mistakes. A spouse may also benefit from bankruptcy, as they may have felt intense pressure to decrease their expenses or increase their income because of the financial challenges.
Generally speaking, people usually need to inform their spouses and older children about bankruptcy proceedings to help them understand the situation. In the long run, everyone in the family may benefit from the protection provided by an automatic stay and the financial relief secured through a discharge.
Learning more about what bankruptcy can do for individuals and their families can help people make a difficult decision. Those who file for bankruptcy often face short-term challenges that ultimately lead to long-term financial relief.