Considerations Before Declaring Bankruptcy

Although bankruptcy seems to be a way to ease the burdens of large amounts of debt it’s far from an ideal solution. There are many things to consider prior to jumping into bankruptcy proceedings.

The actual process of filing the paperwork has been made relatively easy; however, the legal process involved can take a long time and be anything but painless. Your complete financial history will be exposed to a judge, you will have to justify your filing to the court, and creditors will have a change to dispute things that you present.

Bankruptcy also has long-term and far reaching effects even if you successfully complete the process. If you rely on credit cards, you can likely forgot about those days as you cards with balances will be cancelled and any in good standing may be cancelled by the issuing bank. It will be nearly impossible to secure any substantial credit lines for mortgages, auto loans, etc unless you agree to insane interest rates. These negative effects persist for a period of 10 years during which you must keep your credit record in excellent condition. The goal of bankruptcy is for a fresh start where you will reestablish a useful credit rating.

Not all debts will be covered by a successful bankruptcy proceeding either. Back taxes, child support arrears, student loans and certain other debts may not be forgiven. Forfeiture of your assets may also be ordered by the court as part of the proceedings. You could lose boats, automobiles, and other high ticket goods depending on when you obtained them. Although most states will not take your primary residence or car any secondary properties or vehicles may be taken.

As if the credit blemish and asset loss is not enough bankruptcy proceedings can be pricey. The courts charge for the filing and hearings and you may also run up quite a bill with your attorney(s), As you are already in a less than ideal financial situation this can only add to your burden; however, on the positive side bankruptcy will provide a relief from debt collectors, you will no longer have to worry about your wages being garnished and your properties being foreclosed on. By filing before things become too intense of a financial burden you can begin reestablishing a satisfactory credit rating now.

Having limited access to lines of credit can be advantageous especially to those of you that have compulsive shopping habits. Some people should simply not have credit cards as they are not capable of using them responsibly. For some people to realize the need for changing their habits they must hit bottom before they find the strength and motivation to make changes to their financial lives. Consider carefully before you take that plunge.

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