The Truth About Bankruptcy and How you can Avoid It

Avoid Bankruptcy

Given our credit based society, debt load is an all too familiar term with every American. It does not take long for someone with little financial planning experience or budgeting know-how to fall into the trap of credit overload.

With credit comes debt. And when that happens and it becomes overwhelming, bankruptcy is an all too often sought out answer. A lot of people have the mindset that filing bankruptcy will just enable them to start fresh with a clean slate. This article is going to try and banish those thoughts and show you that bankruptcy is not the answer. Financial planning and money management are the keys to getting out of debt.

Talk to anyone that has gone through a bankruptcy. They will tell you that it is a life-changing experience that causes emotional havoc for years to come. It has been listed as one of the top five life-altering stressors that we can go through. It has been known to end marriages, lives even. Bankruptcy is certainly not a means of starting over. Even after discharge, you will always be asked on loan or job applications if you have ever filed for bankruptcy. A common myth is that credit repair services will fix the damage from going bankrupt. This is simply not the case. Your bankruptcy will follow you forever.

There are two kinds of bankruptcy. Chapter 7 is total bankruptcy and will stay on your credit report for 10 years. All assets will be liquefied and you will lose everything. You will need to qualify for a chapter 7 through a means test. You can not go to a bankruptcy lawyer with a few thousand dollars debt and just try to “get out of it”. Chapter 13 depends on what the value of your assets are, and is more like a payment plan. You will still be able to retain some of your assets, and make payments to your creditors. It is still a bankruptcy however, and will stay on your credit bureau for seven years. There are some things a bankruptcy won’t release you from. You will still have to pay child support, alimony, fines, taxes, and your student loans. You also will not be allowed to keep any property unless you have paid for it in full.

One option you have is to go through a debt management company. These are financial planners that will help you control your debt load by taking one monthly payment from you and distributing it to your creditors. They act on your behalf to lower your payments and your interest. These are often considered a last resort to bankruptcy however as it will go on your credit report, and your credit will be considered poor. If you are in debt over your head however, you already have bad credit and it is a more feasible option than bankruptcy.
Financial budgeting and debt payoff are probably the most effective means to good financial health. If you work hard with sound financial planning and are willing to make some sacrifices for a few years, this will be the best long term option for you. You can pay off your debt, get focused on your budget, maybe even work some extra jobs. There will be no long-term credit effects to you. You will also be establishing skills needed to stay debt-free and have a better quality of life. This option is the most difficult, but will pay off in spades for the long-term.

Just about any financial situation can be resolved and bankruptcy avoided with the proper assistance and financial planning. You are going to have to undergo serious money management bootcamp, but this will fare far better for you than total asset dissolution. It will be painful and trying, but bankruptcy is much more difficult to go through. If you take a sound step forward towards financial planning and money management, you can avoid bankruptcy.

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