If you are thinking about filing for bankruptcy, do yourself a favor and think very hard about it before taking that step. Once you file for bankruptcy, it's a long hard road to getting good credit again, and you do have other options if you know where to look.
We all know that times are tough, and many people are having financial difficulties right now with the bad economy. If you have lost your job, most likely you are behind on your bills and it seems like a hopeless condition after awhile. Even when you do find another job, many people are finding jobs that pay much less than their previous ones and still find themselves struggling to pay their bills.
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On top of all of this, many debt consolidation companies out there promise to "help" you out by giving you a consolidation loan to wrap up all your bills into one giant loan. The problem with this is, if you still have open credit cards and lack the discipline to control your spending, the problem gets even worse when you rack up more charges. What's a person to do? The key word is discipline - you must find a way to stop spending right away, at least spending money on anything that isn't absolutely necessary to live.
Once you get your spending somewhat under control, it seems as if you will never get out from under your debt, right? This is why so many lawyers and others trying to persuade you to declare bankruptcy - but is that really the best way to go? Things have changed quite a bit in the past few years, and the basic Chapter 7 bankruptcy is much harder to file for any longer. This is where you ask the courts to simply wipe out your debt, at least the "unsecured" debt, and start over. That means for the average consumer with a bunch of credit cards, you could just start over free and clear. Well, at least that used to be the way it worked.
The standards for filing Chapter 7 bankruptcy are now more strict, and a person must have some type of credit counseling before seeing it through. In many cases, if it is possible for you to pay some of your debts, the court may decide that you need to file a Chapter 13 which require you to adhere to a payment plan for paying off your remaining debts. This law was put into effect in 2005 due to too many people abusing the soft bankruptcy laws at the time where everyone automatically got most of their debts wiped out. This has prevented some people from filing, but in today's economy there are many thousands of new filings each day.
What are the risks and downside of filing for bankruptcy? To start with, you may not get your credit restored for many years since a bankruptcy stays on your credit report for 10 years. Any banks or finance companies looking at your credit report will see this and assume you are a bad risk.
The upside is, if you file for bankruptcy and are accepted it will in most cases stall a foreclosure on your house. So if you are having difficulties making your mortgage payments, this could be a potential benefit to you. However, this benefit is more than offset by the higher price of any future money that you must borrow. Even when you do finally get some credit again, you will generally pay the absolute highest percentage rate for the loans, no matter what company is doing the financing. The higher the risk, the more you pay, it's that simple.
In conclusion it is best to avoid bankruptcy at all costs, since the price will effect you negatively for many years to come. Working out a payment plan with your creditors is much wiser in the long run, and the discipline you develop will help you create a much stronger financial future for yourself.
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