What You Must Consider When Filing For Bankruptcy

Many people think that bankruptcy will be the easiest way to relieve them of their debt problems, and they jump into it without considering everything that comes along with it. Yes, it may well relieve the debt problem, but it is not always easy, and it should certainly be used only as a last resort.

Even though the filing itself is relatively easy, the whole process – just like any other legal proceeding – could be a little painful. The reason is because you will have to convince a judge that your filing was absolutely necessary and you will have to expose all your financial history, leaving it wide open to objections by your creditors. And do not expect your creditors to just settle for 10 cents on the dollar, even though it may happen.

Filing for bankruptcy is a drastic step, and you have to consider very carefully the long term impacts it will have in your life.

You will lose any credit cards that have outstanding balances, and those that you have no balance on may choose to close your accounts. You will also find it near impossible to get a home loan or other types of loan. And if a loan is to be approved, it will be at an incredibly high interest rate.

Keep in mind, for example, that many debts are not covered when you file for bankruptcy protection. For example student loans, back taxes within the past three years and other debts are generally exempt and not covered by bankruptcy protection.

This situation will last for ten years, and during these ten years you will need to maintain an excellent credit record if you want to regain the banks trust. All interest rates will be higher since a bankruptcy is always regarded as the most negative criterion on a credit report. This applies for a new car loan (expect to pay thousands more during the life of the loan), department store cards (if they issue you one) and even a secure credit card.

Not only will you suffer financially, but you may also be required to forfeit real assets like jewelry, boat or Recreational Vehicle, depending on when they were acquired. Some states however make an exception for your car and your primary residence. If you own rentals, they may not be protected.

And you also have to consider that the process can get very expensive, more so if you use an attorney. The procedure is not free: the fees that Courts charge have gone up in the last few years.

On the upside, you will get relief from the stress caused by your debt, and your creditor’s phone calls will stop once they are notified. Your wages will 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.

And this can be an advantage since you won’t have access to credit cards. It is of utmost importance that you change your habits and be extremely careful next time.

Even though people file for bankruptcy for different reasons (many of which are unpredictable i.e. loss of job, medical bills, etc) it can be a wakeup call to change any bad money management habits we may have.