Should I File for Bankruptcy? - Some Things to Consider
Monday, January 5th, 2009 Subscribe To Our Feed
Some people think of bankruptcy as an easy way to offload a crushing debt burden, and it’s sometimes the first method they reach for. Well, it may well relieve the burden, but it’s far from easy and should be the very last thing you use to do so.
While the law has made it relatively easy to actually file papers, the process - like any legal proceeding - is far from painless. You will have to justify your filing, exposing all your financial history to a judge and opening it to objections by creditors. If you genuinely owe the money, they’re unlikely to settle happily for 10 cents (or less) on the dollar.
Even if you’re successful, there are multiple long-term impacts that you’ll want to consider carefully before taking such a drastic step.
You will no longer be eligible for any decent credit. That means that if you are able to receive a significant loan, for instance a home loan, you will be subject to extremely high interest rates which can lead you right back into financial ruin. Any credit cards that you were unable to pay will be lost, and other companies may decide that you are no longer a good risk and terminate your credit with them.
Bankruptcy does not always mean debt free. Some debts are exempt, such as back taxes within three years and student loans.
A bankruptcy stays on your credit for ten years, and it is very difficult to rebuild good credit afterward. Though your FICO scores are very important, nothing is looked upon more seriously and has a more negative effect on your credit than bankruptcy.
In addition to sacrificing any chance of good credit for years to come, you may also be required to sacrifice some of your belongings. Though the courts usually allow you to maintain possession of your primary residence and your car, any other real estate or personal property of great value may be confiscated.
Finally, of course, the bankruptcy procedure itself is not free. Courts always have required fees and if you use an attorney that too will cost you. That can add the final straw to an already very bad financial situation.
On the upside, you will obtain relief from debt collection efforts (provided they receive notification). Your wages can not be garnished and any foreclosure action will be stopped. By taking action sooner rather than later, you will start to build a new credit history that can be better than the past one.
Looking for ideas for reducing credit card debt? Learn some simple techniques for starting to get your debt paid off today on the Debtopedia website. Visit http://www.debtopedia.com to get your free copy of my special report “Secrets Of Credit Card Debt”.
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