When lenders are banging on your door and you see no help in sight for paying off your debts, bankruptcy may seem like the only way out. However, bankruptcy isn’t a decision to make lightly. It will change your life and not necessarily for the better. Before you file for bankruptcy, here is some advice on things you should consider.
Bankruptcy isn’t free. Bankruptcy and bankruptcy attorneys, which are required to file, cost money. There are two primary types of personal bankruptcy: Chapter 13 and Chapter 7. Each must be filed in federal bankruptcy court. The average cost of an uncomplicated bankruptcy is around $1,500. Attorney fees can vary from person to person and state to state.
Here are some important things to know about before you file for bankruptcy:
Bankruptcy doesn’t take care of all of your debt. Student loans, income taxes less than three years due, and back alimony or child support are among a few of the debt items you cannot get rid of.
Bankruptcy can legally appear on your credit report for up to ten years. That means for the next ten years, unless you pay cash for something – including a house or car, you will have extreme difficulties buying it. And beyond the ten year mark, it’ll be an uphill struggle to repair your credit because many creditors ask if you’ve ever filed for bankruptcy.
You will lose many of your possessions. In order to pay your debts, the court will likely take anything you own of value. This includes your home, your car, your bank accounts, your investments and other personal items. And if you think you can simply transfer these items over to a loved one to avoid having them taken, guess again. The court pays close attention to any transactions you’ve had in the past couple of years. If you sold your home or car to your parents or a sibling, it’s still fair game.
It may be difficult to get a job. Employers often check your credit before they hire you. And in the present economy people need every edge they have to get a job.
Bankruptcies are public affairs. Your name, and your bankruptcy, may be published in your local paper.
You lose your credit cards. Not a big deal, right? You’re happy to get rid of them and never see them again. Well that’s fine if you have savings and can manage any financial emergencies, but that’s generally not the case for most people.
Finally, you will not be able to file for bankruptcy again. Probably not at the top of your list of things you’d ever want to do twice, but things happen. Medical problems can wipe out a family’s finances and if you’ve already filed for bankruptcy you’re out of luck.
Bankruptcy isn’t a decision to make lightly, and the effects it has on your life can be devastating. People compare the trauma of bankruptcy to death and divorce. It’s a big deal. That being said, sometimes it really is the only way to manage a situation. Before you jump into it, look into your state’s laws regarding bankruptcy and make sure it’s the right solution for you.
When lenders are banging on your door and you see no help in sight for paying off your debts, bankruptcy may seem like the only way out. However, bankruptcy isn’t a decision to make lightly. It will change your life and not necessarily for the better. Before you file for bankruptcy, here is some advice on things you should consider.