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6 Things to remember before filing bankruptcy |
By David Brown on August 25, 2010
.jpg.aspx) The recent financial meltdown has affected common people badly and many are finding it extremely difficult to survive in a difficult climate. As a consequence, bankruptcy rates have soared. People, struggling with foreclosure notices, incessant collection calls and increasing liabilities, are often left with no option but to file bankruptcy. However, bankruptcy is a quite intricate proposition and you need to be aware of some important facts before putting your right foot forward. Here are a few things which you might like to know before deciding to opt for bankruptcy:
1) Effect of bankruptcy on credit score
It is true that bankruptcy will harm your credit score and it will stay on your credit report for 7-10 years depending on the kind of bankruptcy you file. However, there is no reason for you to get scared. It is possible for you to start repairing your credit once you are done with the bankruptcy process and start building your finances. Your credit score can certainly bounce back if you start taking financially responsible decisions post bankruptcy.
2) Your home isn’t of any use without some good equity on it
According to the common belief, Chapter 7 bankruptcy liquidates the debtor’s assets, including the house. But in reality, homeowners filing for Chapter 7 do not have much equity on their houses, because in most cases the value of such houses has already fallen with second mortgages and the like. In such cases, the trustee may decide not to sell a house with such low value.
3) No bankruptcy will waive off all your obligations
There is a common misconception that bankruptcy eliminates all your debts. Irrespective of the type of bankruptcy you choose, you will be liable for obligations such as alimony, child support, taxes owed to the federal government and most student loans.
4) Start saving before you file for bankruptcy
Services of bankruptcy lawyers do not come free of cost. Their fees depend upon the complexity of the case and most lawyers in Chapter 7 cases ask for upfront payment. Otherwise, their fees would be discharged during the bankruptcy process along with other debt. Also there are fees for bankruptcy filing. So, do not get swayed by the wrong notion that the cost associated with filing bankruptcy is negligible. Be wise and start saving before it’s too late.
5) Explore all the alternatives before you file for bankruptcy
The fact that your liabilities have exceeded your income does not necessarily mean that you will have to file bankruptcy. You need to judge the pros and cons and explore all the possible alternatives before you consider it. Bankruptcy is usually considered as a last resort because of the heavy odds that are involved. Other debt relief options like debt consolidation and debt relief are getting increasingly popular. Nonetheless, people with truly critical financial condition might not be eligible for them. For these people bankruptcy is the only way to get out of their misery.
6) Change your perspective
Bankruptcy is definitely not the best thing that can happen to you. But when it’s unavoidable, take it positively. A little unorthodox approach on your part can help you cope with it in a much better way. A whole lot of people face it and come out of it stronger than they expected. Instead of brooding over your bankrupt status, start working on a financially secure future for yourself and your family.
If you are heading towards bankruptcy then you should clearly know what is ahead of you. So remember the above points and be prepared. Good luck.
Author Bio: David Brown is a content writer with debtincome.com. With writes on various financial topics with special focus on bankruptcy.
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