Most people who have a large amount of debt that they are struggling to pay off at one time or another have considered the option going bankrupt. In this article I am going to give you three very solid reasons why you should avoid bankruptcy at all costs, if possible. Many people do not understand the deep negative impact a bankruptcy can have.
1. Bankruptcy has an extremely negative effect on your credit and becomes a permanent public record!
Bankruptcy is one of the worst negative remarks that you could have put on your credit report. Thus making any additional credit you try to get very hard, and if you do get credit it usually comes with a pretty high interest rate. Plus, it will stay on your credit report for between 7-10 years. Even once it is removed from your credit report it remains a public record for the rest of your life. So whenever you apply for new credit at any point in the future if asked the question whether you have ever filed bankruptcy by law you must answer yes.
2. New Bankruptcy laws in 2005!
In 2005, Congress passed a law which makes anyone filing for a Chapter 7, which wipes the slate clean of all your debts much more difficult. Basically if you have an income and assets than most likely you will go through a review to determine if you should do credit counseling first for at least 6 months. According to NFCC close to 80% of people who apply can not follow the strict guidelines set from them to complete the program thus throwing them back into the bankruptcy court. Thats when Chapter 13 comes into play which is a form of personal bankruptcy in which the court will determine how much you will pay back each creditor you list based on your budget.
3. Court Controlled Income with Chapter 13!
Before the new law was passed in 2005 many people would have been able to claim Chapter 7, were now forced to go Chapter 13 instead. Chapter 13 requires that you review with the court and disclose all of your financial information to the judge. You must show all forms of income and assets. The court will review your expenses compared to your income and then determine how much money you will have to pay each month. You do not have much of any say in this process. If you have liquid assets available they will make you sell them, within State law, to pay down your debt. There are scheduled reviews each year and if your income increases you must report this to the court this could increase the amount you pay back. If you have two family vehicles you might have to sell one to pay down the debt. They basically tell you what you can do with your money. If you have the premium cable you will need to cut back to basic cable, if you eat steaks every night you will need to cut back to burgers. This can be a very painful and embarrassing process.
These are all very negative things that someone must be made aware of before speaking with a bankruptcy attorney. Many attorneys will down play these negative aspects of bankruptcy. Bankruptcy is there for a reason for some people they have no other option available to them and must file bankruptcy, however many people go bankrupt unnecessarily. A great alternative to bankruptcy is debt settlement. With debt settlement in many cases you will save more money than you would have through a Chapter 13, plus you will get out of debt faster as well, and not suffer the many negative consequences of a bankruptcy.
Steve Bis is a senior debt analyst and research assistant with the USCA/Roll Law Firm which practices primarily in debt settlement, an alternative to filing for bankruptcy.
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