Can filing bankruptcy save you from financial ruin?

2007-03-08 10:33:40

( Legal )



Before bankruptcy laws were created, debtors languished in prisons until their debts were settled. Bankruptcy was created to prevent prison abuses and give debtors another chance. However, filing bankruptcy will not wipe out all your debts. So before resorting to bankruptcy, know what you are getting yourself into.

There are two kinds of individual bankruptcy: Chapter 7 and Chapter 13. The former requires the full liquidation of all your debts, canceling non-exempt debts. The latter is a court-mandated payment plan designed to make it easier for you to make monthly repayments.

Filing bankruptcy should not be taken lightly. It should be your last resort. Remember that bankruptcy appears on your credit record for ten years and although many lenders will grant loans despite bad credit ratings, you will have limited options.

You also risk losing most of your property. Before filing bankruptcy, appraise your assets. File only if your debts greatly exceed the value of your assets.

However, if your assets are more valuable, then you might be better off considering these alternative approaches:

1. Negotiate.
Ask creditors for more time. Inform them that their refusal will force you into bankruptcy. They would much rather receive a little each month rather than nothing at all.
But although a powerful negotiating tool, this threat will not work on secured creditors who have authority to repossess your property.

2. Credit Counseling.
When your own attempts at negotiations are unsuccessful, seek the assistance of consumer credit counselors. They can help you get a better payment plan by doing the negotiations with your creditors.

3. Consider Chapter 13 bankruptcy.
This appears on your credit record for only seven years. However, this will do little to help if most of your debts are exempt from bankruptcy. If you used a co-signer, he will be accountable for your debts, unless he himself has also declared bankruptcy. Do your research and consider every factor before filing bankruptcy.

Life after Bankruptcy
Filing bankruptcy is not disgraceful. If corporations can declare bankruptcy to avoid legal problems, you should also be able to do so to protect yourself.

Filing bankruptcy doesn’t mean being denied credit for the next ten years. There are loan plans for people with bad credit. It is even advantageous to lenders since you can only declare bankruptcy once every seven years. So don’t hesitate to start over by applying for refinancing after bankruptcy. The sooner your debts are settled the sooner you can start over.

Feeling overwhelmed by seemingly unmanageable debts might make filing bankruptcy a tempting solution. But while it frees your mind from the pressures of repayment, it subjects your personal morale and credit history to some damages.

Be smart. Take time to consider all options. And if in the end you decide that filing bankruptcy is the only way you can save yourself from further financial ruin, then do so with a positive attitude. Know that it is not the end of your world but an opportunity for a second chance.


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