Bankruptcy

Perhaps your financial circumstances have changed and you find yourself overwhelmed with debt.  You know that many people file for bankruptcy when they are in a similar financial position and you wonder if you should file for bankruptcy too.  The companies that are selling bankruptcy services make it sound like filing for bankruptcy is a perfect solution to financial woes.  However, before you consider filing for bankruptcy you need to think about the pros and cons of this move.

When you took out your loans or used your credit cards you thought you would be able to meet your obligations.  Something in your financial picture has changed and you can no longer make your payments and are falling further and further behind.

The first thing you want to do is to sit down and make a list of all your debts.  What kind of debt do you owe and what are the payment amounts.  Determine how long it will take you to pay off these debts if you make the minimum payment and how long it will take you if you pay more than the minimum.  Then determine if you have enough income to cover the amount you need to make the payments.  If you can get these debts under control in several years you may not want to file for bankruptcy.  You may be able to work with your creditors to lower your payment amounts.

Credit card debt is often the reason people are in financial trouble.  If you really are in deep financial trouble and most of your debt is credit card debt then bankruptcy can greatly reduce or eliminate the amount you eventually will pay.  Once you file for bankruptcy your creditors can no longer contact you.  Instead, the creditors deal with your attorney and the courts.

If you declare bankruptcy and your debt is wiped out you will be able to start over and will have a sort of clean financial slate.  The debts covered by the bankruptcy will be removed, but the bankruptcy will leave a negative mark on your credit report for a full ten years.  You will be considered a high credit risk and may have a problem if you want to purchase a new home or car or anything that requires a credit check. While you will no longer be listed as owing money to the creditors who were paid off, they can make a note in your file stating they were not paid back under the original terms of the agreement.

There are some debts that will not be erased by filing bankruptcy.  If you owe things like student loans or back child support you will still owe the full amount of these debts.  Bankruptcy will not erase or reduce the amount owed on them.

Filing for bankruptcy involves a lot of hassle.  You will need to provide all types of financial information before you are permitted to file.  There may be some income qualification for some types of bankruptcy and you may be required to attend credit counseling.

Before you decide to file bankruptcy you need to be realistic about it.  Bankruptcy is not a simple easy solution to financial problems.  Going through a bankruptcy causes a great deal of stress.  The strain of a bankruptcy has caused quite a few marriages to fail.  Some people who file bankruptcy become depressed and others experience a feeling of low self-esteem since they were unable to fulfill their agreement to pay back what they had borrowed.

This does not mean that you should not consider filing bankruptcy if you feel it is necessary.  You simply need to look realistically at what is involved and what a bankruptcy filing entails.