Using Bankruptcy As A Debt Solver - Is It The Right Move?
May 10, 2008 · Print This Article
Often, it seems like your bad debt situation continues to get worse no matter what you try. You may feel like you’ve run out of options and that declaring bankruptcy is the only choice that you can make. If you feel this way, you need to wait and really think about what the consequences will be. Filing bankruptcy can produce some costly effects, both on your credit and your ability to obtain financial assistance later on.
The experts, whether they are financial advisors or lawyers that deal with bankruptcies, emphasize that bankruptcy must not be used unless it is absolutely necessary. If you have a mount of high-interest credit card debt and you cannot make your mortgage payments, and the creditors are threatening to repossess your car or turn off your lights, and you cannot pay any of them, you may need to declare bankruptcy. However, the question is simple: Does your circumstances reflect this picture? Do you really need to go to extreme measures to resolve your debt?
How did you get into this debt mess? Well, for most consumers the problem is financial mismanagement. They spend well beyond their means and they fail to pay their bills on time, which leads to late fees and other difficulties with creditors. On the other hand, debt can sometimes be the result of unforeseen life circumstances like the loss of a loved one, a job, or major medical bills. These types of situations are probably more commonly associated with bankruptcy that the former.
People have the impression that bankruptcy is a cure-all. They seem to think that it can be used to “erase” their debt entirely, with no further consequences. This is not true. More importantly, you may not even be eligible for bankruptcy. The laws have been revised to cut down on the amounts of people who decided they want to wipe away their debt by bankruptcy. There is a strict application process you will have to pass and then you will also have to wait for the judge’s decree in order to receive debt relief.
What are some consequences of declaring bankruptcy? Well, your credit rating will be adversely affected for as long as ten years in many cases. This can be detrimental in if you later wish to get financing for loans. Your credit score has a lot of influence when you want to buy a new car, get a mortgage, or a personal loan. Lenders will use your credit history as a factor to help them determine if you are too much a risk to receive financing.
You really need to do research on your options when you think that the only viable one is bankruptcy. Talk to bankruptcy lawyers and other financial advisors to find out what they would recommend given your specific circumstances. Weigh the pros and cons carefully. If you know somebody who has gone through bankruptcy, ask him about his experiences. Don’t feel like you must settle for bankruptcy when there could be alternatives to help you ease your burden of debt.
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