Being deep in debt can feel hopeless. To make matters worse, there are lawyers who advertise on radio and television who promise to make everything better through the magic of bankruptcy. All you need to do is call their toll-free telephone number for a no-obligation consultation and you'll be on the road to financial freedom. While there may be rare cases where it can help, here are 10 things you should know before filing for bankruptcy.
1. It is not the ultimate solution to your money problems. You may be able to get rid of your debt, but you will only be treating the symptom of your problem and not the cause. Chances are it wasn't entirely your fault that you went into debt, but there are also things you could have done differently. Learning new spending and saving habits is a vital step to regaining control; whether you end up filing for bankruptcy or not.
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2. Declaring bankruptcy is much harder than it used to be. The bankruptcy law changed on 200?. There are more hops to jump through, and it's not an easy process. You can always try a do-it-yourself bankruptcy, but they have made it so complicated that you're practically forced to hire a lawyer.
3. There is more than one kind of bankruptcy. When it comes to normal consumer debt, there is Chapter 7 and Chapter 13 bankruptcy. To put it in simple terms: Chapter 7 wipes the slate clean, and Chapter 13 sets up an affordable payment plan.
4. You must qualify before filing. Not everybody can file for Chapter 7. That's because one of the steps is to pass a "means test". The main purpose is to see if you are capable of paying off your debts under Chapter 13, or if you are "poor" enough to use Chapter 7. The catch is that the courts get to decide what you can afford; not you.
5. You may lose some of your personal belongings. Another thing you should know before filing for bankruptcy is that you may be ordered to sell some of your belongings to help pay back your creditors. There will be property that's exempt from being sold, but...again...it's the courts that decide what's best for you.
6. There is a negative psychological impact. For one thing you may feel like a loser because you couldn't pay your own debts. The other thing is that there is a strong social stigma, which can make you feel alone. It's worth noting that the majority of people thought they would be the exception prior to filing, only to find out afterward just how awful the experience was.
7. It will haunt you for at least 10 years. By law, a bankruptcy can stay on your credit report for 10 years. But you're not planning on ever getting credit again, right? So what's the big deal if it's on your credit report? The problem is that a lot of people look at your credit report, and you may not even be aware of it. It's not only car dealers and lenders, but also landlords, insurance companies and employers that may make a decision based on what your credit report says.
8. Other people will know. There's no way around it, bankruptcies are a matter of public record. At the very least someone could do an open records background check and see it on your record. But it could be even worse; depending where you live, the bankruptcy could be published in the newspaper.
9. You will be swamped with junk mail. If you thought you got lots of credit card offers before, just wait until you declare bankruptcy. See, credit card companies know you won't be able to include your new line of credit in a bankruptcy, so to them it's like easy money. Not only that, but because bankruptcies are a matter of public record, and that will put you on a special list to get a whole new breed of junk mail.
10. There are other solutions. Maybe bankruptcy would make more sense if there weren't so many other options. You can find ways to earn more money, spend less, and work out arrangements with all of your creditors. All of those will help you get your debt under control and start being financially healthy again.
As you can see, bankruptcy really isn't the answer. So, the next time you see or hear a commercial promising to make everything better...just remember this list of things you should know before filing for bankruptcy. Many lives have been ruined by it, please don't let yourself become a part of that sad statistic.
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