Advice on Bankruptcy – Is This How You Want to Deal with Debt?
By Daily Dosh | November 13, 2007
So you think bankruptcy is an easy way out of dealing with debts? Sorry, but this just isn’t the case. It is often the first thing people think of doing but in all honesty it should really be treated as a last option.
Although the law makes it comparatively easy to file papers for bankruptcy it is far from painless. You will need to prove to a judge that this is your only option by showing all of your financial history as well as taking objections from creditors. If you really do owe money then it highly unlikely that they will accept 10 cents to the dollar.
If you have decided this is what you want to do anyway and you are successful, there can be long-term impacts which should not be ignored.
Any credit cards that have outstanding balances will be cancelled and other banks may choose to close your accounts. If you want to take out a home loan then this will be nigh on impossible, unless you are prepared to pay absurdly high interest rates.
It may surprise you that bankruptcy doesn’t even cover all debts. Back taxes from the last three years and student loans are normally exempt from bankruptcy protection.
The problems you face after bankruptcy will continue for 10 years and during that time you’ll have to be extra careful to maintain a near perfect credit record so that you can re-gain trust from lenders. Potential creditors will regard any bankruptcy as the most negative criterion on any credit report - even beyond a low FICO score.
In addition to the impact on your credit rating, you’ll also have to hand over assets such as boats, jewelry and other items of value. Depending on where you live even your primary residence and car may not be safe.
You will also need to factor in the cost of actually filling for bankruptcy. Court costs and attorney costs should not be forgotten about.
On the bright side, 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. It is always best to take action as soon as possible so that you can start anew and build up a much better credit rating than before.
Because you won’t be able to take out any new credit cards, you’ll be better equipped to keep your spending under control. Some people find having a “flexible friend” just too much to resist going on a spending spree.
Bankruptcy will also give you a good shake up and force you to change your ways. Some people need to hit rock bottom before they can make changes for the better. Just remember it’s a painful process, think carefully before you take that leap.