Finance Articles

Most debtors who have a large amount of debt that they are having problems looking to finish paying off, at one time or another have contemplated the option of filing for bankruptcy. In this brief article I am going to give you some very serious reasons why you should circumvent bankruptcy at all costs, if possible. A lot of people in debt do not recognize the very negative blow a bankruptcy can have.

1. Bankruptcy has an tremendously negative impact on your credit score and becomes a permanent public record!

Bankruptcy is one of the nastiest derogatory remarks that you could have put on your credit report. Thus making any more credit you try to get very difficult, and if you do get credit it usually comes with a very elevated interest rate. Plus, it will stay on your credit history for up to 7-10 years. Even once it is removed from your credit history it remains a public record for the rest of your existence. So when you try for new credit at any point in the future, when they ask whether you have ever filed bankruptcy by law you must answer yes.

2. Brand New Bankruptcy reforms in 2005!

In 2005, Congress approved a law which makes anyone filing for a Chapter 7 bankruptcy proceeding, which wipes the slate clean of all your debts much harder. Basically if you have an money and assets than most assuredly you will go into a review to resolve if you should do credit counseling first for at the minimum 6 months. According to NFCC close to 80% of people in debt who try can't abide by the strict guidelines set from the creditors to finish the program thus throwing them back into the bankruptcy filing. That's when Chapter 13 comes into the situation which is a form of personal bankruptcy in which the court will determine how much you will pay back each creditor you list based on your budget.

3. The court will control your income with a Chapter 13 Proceeding!

Prior to the new law being put into place in 2005 many debtors that would have been able to claim Chapter 7, were now forced to go Chapter 13 instead. Chapter 13 requires that you go over with the court and make available all of your finances. You must show all streams of income and assets. The court will look at your expenses compared to your income and then come to a determination on how much money you will have to dish out each month. You have pretty much no say in this process. If you have liquid assets such as a paid off car they can make you sell them, within State law, to pay down your debt. There are timed financial hearings each year and if your money making abilities change you must report this to the court, this could increase the amount you pay back. If you have multiple family vehicles you could have to sell one to help pay off your debts. They for lack of better words tell you what you can do with your money. If you have the higher costing cable you will need to cut back to basic cable, if you consume high priced steaks every day you will need to cut back to cheeseburgers. This can be a extremely hurtful and embarrassing process.

These are all very bad proceedings that someone must be made aware of prior to dealing with a bankruptcy lawyer. A lot of lawyers will not disclose these poor facts of bankruptcy. Bankruptcy is available for a reason and for some people they have no other method available to them and must file bankruptcy, however many people go bankrupt when it could have been avoided. A great substitute option to bankruptcy is debt settlement. With debt settlement in the majority of cases you will save tremendously more money than you would have with a Chapter 13, plus you will get out of debt much quicker, and not experience the many negative consequences of a bankruptcy hearing.

Steve Bis is a credit card debt analyst with the US Consumer Advocate, which practices in credit card debt reduction.