Filing for Bankruptcy, regardless of whether chapter 7 or chapter 13 may have long lasting negative effects on your credit history for up to 10 years. These negative marks against your credit history may make it difficult to apply for future credit, secure jobs that require a positive credit profile, rent an apartment, purchase a vehicle, etc.
The cost of filing bankruptcy can add up over the course of years. Banks or other lenders will most likely charge higher interest rates and fees should they choose to lend money. Bankruptcy is deemed as a high credit risk and therefore to compensate for the risk lenders charge higher interest rates and/or fees.
Bankruptcy can have a severe negative impact on relationships or marriages. The stress of bankruptcy leads to many separations or even divorce. Financial problems create much unneeded stress on relationships, filing for bankruptcy does not offer the fresh & clean start that many seek when filing and that carries over into relationship difficulties in many cases.
What can you do to Avoid Bankruptcy?
Live Within Your Means
Avoid getting into debt trouble to begin with. Do your best to avoid charging credit cards for every day living expenses. Look at your current financial situation. Are there charges that you pay monthly that are attached to a credit card payment such as utilities, cell phone bills, magazine subscriptions, grocery bills, etc.? Review your budget to find unnecessary charges to your credit cards that you can manage without.
Identify the Debt Problem Early
Being proactive rather than reactive to your debt problems is the key to avoiding bankruptcy. Many individuals are able to avoid bankruptcy by realizing their debt problems early, therefore leading to more time for those individuals to regain control of their finances. One recommendation is to create a monthly personal budget report. This will lead to earlier detection of potential problems. By doing this an individual can also identify their savings potentials as well. Saving money now, regardless of amounts, will help for future emergency needs.
Review all of Your Options First
There is a common misconception that filing bankruptcy gives an individual a fresh start on their credit. This is simply not true. Filing for bankruptcy has several long lasting negative impacts as outlined above. One of the first things that should be done is to speak directly to your creditors. They may be able to work out arrangements that would allow you to pay less than the minimum amounts for a short period of time. Sometimes this is enough to help an individual avoid bankruptcy. Another option is to look at getting a part time job or selling assets to avoid filing. Selling your assets should be a last resort, however in the long term this can help avoid the long lasting impact of bankruptcy.
Seek Help
Seek advice from a non-profit Credit Counseling agency. Look for a Credit Counseling or Debt Management provider that offers a free consultation. Keep in mind that Credit Counseling / Debt Management organizations are designed to assist an individual with their finances first and then provide debt reduction services second. You may find that with a few minor changes you may be able to avoid filing and repay your debts on your own.
Avoid Debt Settlement companies. Debt Settlement, in many cases is viewed as filing for bankruptcy by many lenders. This may sound like a quick fix however nothing beats repaying your debts in full, whether on your own or through a Debt Counseling / Debt Management company.
Use bankruptcy as your last option. Some situations can spin out of control very quickly. Just be sure that you review all situations before filing.
Written by Rick Munster
