Personal Bankruptcy – Before You File

For anyone experiencing overwhelming debt issues, the first thing that often comes to mind is filing for personal bankruptcy.  While this may seem like the only choice you have, it's a drastic step that should be carefully considered.

Filing for bankruptcy is a fairly simple procedure but there can be complications that last for several years to come. Your financial history will be painfully exposed and there are often objections initiated by creditors.  It's not a pleasant process.

 You will lose any credit cards that have outstanding balances, and others may choose to close your accounts. You may find it nearly impossible to get a home loan or other large credit lines and if you do it will be at high interest rates that could put you back into the financial ruin that you just came from. 

It's also important to note that not all debts are covered even by a bankruptcy filing. Back taxes within the past three years, student loans and various other debts can be exempt from bankruptcy protection.

The ripple effect of filing for bankruptcy can go on for ten years. During this time you will need to maintain a meticulous credit record in order to work your way back to a good credit standing.  It's also important to keep in mind that potential creditors will regard any past bankruptcy as a negative strike against your on any credit report - even below the low FICO score.

In addition to how this can impact your credit you may also be required to forfeit real assets things like jewelry, boats or luxury items, depending on when they were acquired.  Most U.S. states will make an exception for your primary residence or your car; however, if you have a secondary property it may not be protected.

 Finally, filing for bankruptcy is not free.  There are court fees and also attorney fees should you need to use one. 

On the brighter side, taking quick action to initiate bankruptcy proceedings will put you on the path to a new, cleaner credit history.  After debt collectors have received notification you will achieve debt collection relief.   Also tour wages can not be garnished and any foreclosure action will be stopped.  

Since you won't have access to new credit cards, this can actually be an advantage. There are some people who simply should not have access to easy credit, until and unless they can find a way to change their habits.

For some, filing bankruptcy can serve as a huge wakeup call to change any bad money management habits and the bankruptcy experience may be what it takes to find the strength needed to make positive long-term changes, however consider carefully such a process before making your final decision.   

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