“Have the courts eliminate all your financial obligations. Be debt-free by filing for bankruptcy!”
“Regain financial control by declaring bankruptcy!”
“Use bankruptcy to eliminate debt and get a fresh start!”
Have you ever heard a bankruptcy law firm advertise using similar phrases? These firms made bankruptcy seem attractive — eliminate your debts and be free from all of your financial obligations. However, bankruptcy is a very scary proposition, and many people do not stop to fully consider the dark side of bankruptcy.
Why Is Personal Bankruptcy Harmful?
Bankruptcy can have negative effects both financially and psychologically. While a bankruptcy will stay on your credit record for 7-10 years, the process and emotions of going through bankruptcy will be with you for the rest of your life. You may have your wages garnished and your assets (including personal items) repossessed. Many people admit that bankruptcy turns into a major negative life-changing event.
Unfortunately, while the bankruptcy will leave your official credit record after a decade, you’ll still need to report this fact if you are asked about it on a loan or employment application. While this may say nothing about your ability to perform a job well, potential employers may be reluctant to hire someone who has gone through bankruptcy. In addition, many employers require a credit check, and your bankruptcy can reduce your credit score by up to 200 points.
Another startling fact that isn’t discussed in bankruptcy advertisements is that not all debts can be dismissed through Chapter 7 bankruptcy. For example, you are still responsible for back taxes and student loans even if you declare bankruptcy. In these situations, bankruptcy is not even an option.
Avoid Bankruptcy! Information To Help You Stay Afloat
While personal bankruptcy may seem unavoidable, there are many ways to fight back before giving up. Here are a few ideas:
1. Cut down on spending to reduce debt.
Sometimes, just changing your spending habits and making minor financial changes can put bankruptcy fears far away. Many personal bankruptcies are due to excess credit card debt so developing a system to eliminate the debt will be crucial to avoiding potential bankruptcy.
2. Consider credit counseling.
Credit counseling is required before filing for bankruptcy in the US. This requirement allows you to work with a professional to improve your financial position, to create a plan for paying your creditors, to examine alternatives to bankruptcy, to help you develop a budget. Credit counseling may even be able to lower some of your payments. Also, the counseling fee is waived for those who do not have the means to pay.
3. Look into debt consolidation.
Another way to have financial professionals work with you to reorganize your debts is through credit card debt consolidation. Debt consolidation is essentially a loan that condenses all of your various debts into one large debt; some of the benefits include a smaller monthly payment and less time spent keeping track of the different debt payments. However, when you consolidate debt, it can be expensive; so a better approach would be to be able to negotiate with creditors yourself.
- National Foundation For Credit Counseling for credit counseling
- Debtor’s Anonymous for providing support and fellowship among recovering debtors
- Debt Consolidation Care for your debt consolidation needs
- Home Foreclosure Fighter for loan modification services
- Lower My Bills for home refinancing, debt consolidation and debt management
- for mortgage refinancing and personal loan needs
Always perform your due diligence before joining any community or subscribing to any service.
4. Improve your money management skills.
Instead of consolidating your debts or going through with bankruptcy, you can also choose to attack your debt by learning more about money management, and by settling your debts and saving for the future.
Parting Thoughts On Personal Bankruptcy
While bankruptcy lawyers may claim that you can be debt-free by filing for personal bankruptcy, it is vital that every alternative option is explored first. Bankruptcy can be both personally and financially harmful, so almost any other option can save you years of grief, fear, and financial stress.
Remember: declaring bankruptcy won’t change your personal habits — you may find yourself in the same situation again 20 years later. I strongly recommend that you attack the source of the problem by learning how to properly manage your personal finances, whether through educational courses or through personal financial software such as You Need A Budget (a desktop budgeting tool) or Mint.com (a browser based financial tool). By becoming educated about personal finance, you can avoid bankruptcy and turn your financial situation around.
This guest post was written by Jonathan Leane. Check out his sites, Debt Loans and Master Your Card, the credit card blog.
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{ 3 comments… read them below or add one }
Those were some good reminders about things people should keep in mind before filing for bankruptcy. Some people have an idea that bankruptcy is a good way to wipe their slate clean and that just isn’t the case. It’s a lot more than simply filing the paperwork and being able to brush off debt collectors.
Getting out of serious debt is hard work, and there are lots of things that you need to learn and do. I contacted the people at nomoredebts.org and they worked with me for free. They dealt with my creditors, negotiated lower payments, and I never had to declare bankruptcy.
While no one would ever want to file for bankruptcy in their lifetime, it is not the worst thing you can do if you are really desperate for financial relief. Bankruptcy can help you start over and it is definitely something you should consider if you have so much debt that you simply cannot pay off.