When To Declare Bankruptcy...Or Do You?

When you are struggling with credit card and other debt to the point where you truly cannot make your regular monthly payments, the idea of declaring bankruptcy can be very appealing. After all, it looks like declaring bankruptcy gives you the chance to wipe the slate clean and start over. While this can be the basic effect of declaring bankruptcy, if you are eligible for the right kind, you need to look carefully at your situation before making this drastic decision.

Remember, declaring bankruptcy will ruin your credit score, and the impact stays on your credit history for as long as ten years. It can also make it very difficult to get a credit card, loan, new bank account, or even a job. If you should need to buy a car or a house in the near future, you will probably be unable to finance the purchase.

Before you pull the bankruptcy card, make sure you have exhausted all of your other options. Have you contacted a reputable credit counselor? Have you really tried to work out a budget? What about negotiating with your creditors? They will often work with you because if you declare bankruptcy, they lose all of the money you owe.

If these efforts are not enough to help you manage your debt, bankruptcy may be your only option. You will need the help of an experienced bankruptcy attorney as you head through the process. You will either have to file Chapter 7 or Chapter 13 bankruptcy. Chapter 7 is more lenient but harder to qualify for. The first step towards either type is filing for bankruptcy in the federal bankruptcy court. This protects you from your creditors by placing a restraining order on them, giving you a little time to breathe as you go through the process.

Once you file, you are required to enroll in credit counseling from an approved organization. This must happen within six months of the time that you file. Unless you have a very low income, you will likely have to file for Chapter 13 bankruptcy. This does not wipe out all of your debts, but it does allow you to work under a court approved repayment plan to repay at least a portion of what you owe. You will also get to keep your car and house, if you have them, rather than having to sell them to repay your debts. Under Chapter 7, most of your debts will be erased, but you will be required to sell some of your property to pay off some of the debts. Either way, filing bankruptcy is a major decision with long term effects on your financial well being, so make sure it is necessary before you go down that road.