Declaring bankruptcy is no laughing matter, as it entails a new beginning at least in a financial sense, and can have negative repercussions on a person's credit for many years. That being said, people need to understand what the pros and cons of declaring bankruptcy really are, as having a grip on these items can allow the individual to make an informed decision on whether or not to go ahead with the actual filing.
Most people would flinch at the very thought of filing for bankruptcy and,
in truth, filing for bankruptcy should be a person’s last resort. The problem that exists, however, is the fact that many people are afraid of the negative stigma that often goes along with it and they view it as a personal failure of themselves. No one goes into debt with the assumption that they will simply declare bankruptcy to avoid having to payback what they owe. Rather, it is a person’s full intention to pay off every last one of their debt, and in a world filled with easy access to plastic credit cards, interest only loans, deferred payments, and the bombardment of advertisements that we can have it all now and pay for it later many consumers have gotten carried away into accumulating such a mountain of debt that it begins to crush them. Soon they are facing the question of whether or not they should declare bankruptcy.
Before making that decision, it is best to exhaust all other avenues that may be available. Although each person’s circumstances can differ, the following steps will help you know when and if you should file for bankruptcy. It goes without saying that the best avenue to take is to pay off the debts and, for many, this is actually still possible if they renegotiate their payments. To begin with, no matter what your debt is, always pay your mortgage, or rent, and vehicle notes first. These are secured debts and cannot be dismissed. Then pay your utilities. Many electric companies and gas companies have plans where you can pay an equal amount each month so that your payment is more steady.
The next step is to make a list of all of your credit card debts and then contact each credit card company to try to renegotiate the interest rate and the amount of the monthly payment. In some cases, you can even negotiate a freeze on accruing any additional finance charges for a specified period of time. Most credit card companies will be willing to work with you, after all getting paid something, even if it is only a small payment and will take much longer to pay off, is better than getting nothing and/or facing being a creditor in a bankruptcy. If, however, you find yourself unable to renegotiate with the credit card companies, look into securing a personal bank loan that will enable you to consolidate all of your credit card debts. In this way, you will now only have one payment to make each month. In addition, the interest rate on a personal loan can be half of what the interest rate was on the credit cards. While doing this, do not use any of those credit cards. In fact, destroy and close out all but one and use it only for “emergencies”.
If renegotiating or obtaining a personal loan is not doable, try contacting a credit counseling companies. Many of these companies will provide you with free counseling on how to pay off your debts and they can contact your creditors, usually gaining a more favorable result than you could as the debtor. However, be diligent in researching these credit counseling companies because there are a plethora of scams out there. In addition, some may get your credit card debt cut down, even in half, but then you find that the fee for their services negates any savings, and when it comes to filing your federal and state taxes, you will learn that any amount the credit card company has deducted from your debt must now be claimed as income to you, hitting you with higher taxes. In the long run, you could find yourself actually in deeper debt than when you first began.
After you have made all attempts to pay off your debts, and you have exhausted all of your financial resources, then by all means, file for bankruptcy, and the sooner the better. It can be your saving grace in starting over so long as you understand how it will impact your present and future life. In 2005 new bankruptcy laws went into effect in the United States. In many instances the new laws have made it more difficult to file repeated bankruptcies. However, they have also helped people retain assets such as a home and/or vehicle. There are two types of personal bankruptcies that you can file, chapter 7 and chapter 13 bankruptcy.
Filing chapter 7 can eliminate all of your debt but you will most likely lose all of your assets as well. In a Chapter 13, you can protect some assets such as your home and vehicle, but you will be required to pay off your debts over time. A bankruptcy attorney can help you decide which Chapter would be best for you. It is important to note however, that any bankruptcy will adversely affect your credit for years, seven to ten years to be precise. However, even with a less than perfect credit score, there are companies and banks that will advance you small lines of credit, although usually at higher interest rates. This is not a bad thing as it will help you to rebuild your credit.
Because of today’s economy, millions of people are and have faced filing for bankruptcy so you are most certainly not alone. Instead of looking at it as being a negative stigma or as a personal failure, look at bankruptcy as a new beginning. You know how you got in trouble so you know how to avoid getting there again. A bankruptcy gives you a clean slate to start anew as a wiser and more informed person. We all can get ourselves into trouble one way or another. It’s reassuring to know that when we fall, there is help to get us up. If you need to file for bankruptcy, do so with wisdom and with thanks.
