If you have reached a point where your finances are spiraling out of control and you can simply not afford to repay debts you owe within three years and even with significant cut backs and changes to your spending, then you are most likely in a situation where you are considering the possibility of declaring bankruptcy. And if that does apply to you, then you are probably wondering just what are the effects of declaring personal bankruptcy? What will the consequences be?

Well, first of all, take comfort from the fact that you are not alone in considering bankruptcy. And also, bear in mind that it is a legitimate means of getting a fresh financial start for those with no other alternative. But the effect on your credit rating will be negative. Bankruptcy is considered the ultimate admission, in many ways, of an inability to manage one's finances. It shows up on your credit file for ten years. During this time you will find it terribly difficult to obtain credit and even in situations where you are able to get credit, you will face extremely high interest rates are you will be deemed a high risk borrower. You can, however, with patience, sensible spending and discipline, rebuild your credit.

You should also consider the fact that this is a matter for public record and, as such, anyone can find out that you have declared bankruptcy. This can often be seen as one of the most embarrassing effects of declaring personal bankruptcy.

And another consideration, which tends to feature less with people, is the effect on the creditors. Ok, so it is one thing for a huge corporation to not receive a repayment, but what if your creditor is a small business struggling through the recession in a similar manner to yourself. Surely this ethical question ought to be considered.