Aspiring Spirit

Most debtors who have a hefty amount of debt that they are failing to finish paying off, at one time or another have thought about the option of going bankrupt. In this writing I am going to give you some very solid reasons why you should avoid bankruptcy at all costs, if you can. Many people don’t comprehend the serious negative blow a bankruptcy can have.

1. Filing for bankruptcy has an very negative impact on your FICO credit score and becomes a lifetime public record!

A bankruptcy proceeding is one of the nastiest negative remarks that can be lodged on a credit report. Thus making any more credit you attempt to get very hard, and if you do obtain credit it usually comes accompanied with a seriously elevated interest rate. Plus, it will remain on your credit report for between 7-10 years. Even when it gets removed from your credit report it remains a public record for the rest of your life. So whenever you try for new loans at any point in the future, if they ask whether you have ever gone through a bankruptcy proceeding to avoid breaking the law you must answer yes.

2. New Bankruptcy reforms in 2005!

In 2005, our government passed a law which makes anyone filing for a Chapter 7 bankruptcy proceeding, which wipes the slate clear of all your debts much more difficult. Basically if you have an income producing job and a home than most likely you will go into a review to resolve if you should go through consumer credit counseling first for at least 6 months. According to NFCC close to 80% of people who try can’t abide by the very regimented rules set from them to complete the program thus throwing them back into the bankruptcy proceeding. That’s when Chapter 13 comes into light which is a form of personal bankruptcy in which the court will decide how much you will pay back each collector you list based on your budget.

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

Before the new law was approved 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 review with the court and disclose all of your financial information. You must show all sources of income and assets. The court will look at your monthly expenses compared to your income and then determine how much money you will have to pay each month. You have pretty much no say in this process. If you have liquid assets such as a house they can make you sell them off, within State law, to pay off your debt. There are scheduled hearings each year and if your income increases you must report this to the court, this could increase the amount you pay back. If you have two family vehicles you might have to sell one to pay down the debt. They basically tell you what you can do with your money. If you have the higher costing cable you will be forced to cut back to basic cable, if you consume steaks every night you will need to cut back to cheeseburgers. This could be a tremendously hurtful and embarrassing proceeding.

These are all very negative proceedings that people should be made aware of prior to speaking with a bankruptcy lawyer. Many lawyers will play off these negative facts of claiming bankruptcy. Bankruptcy is available for a reason and for some people they have no other method accessible to them and must file for a bankruptcy proceeding, however a lot people go into bankruptcy unnecessarily. A very attractive substitute option to bankruptcy is debt settlement. With debt settlement in the majority of cases you will save more money than you would have through a Chapter 13, plus you will be out of debt much quicker, and not suffer the many negative consequences of filing for bankruptcy.

Steve Bis is a debt analyst with the US Consumer Advocate, which practices debt relief.

- Steve Bis