Avoid Bankruptcy – Why You Need to Avoid Bankruptcy
At first glance, Bankruptcy may seem like the only possible way to get out of the bad credit or financial crisis that you’re in. The stress and pressure of debt can certainly be overwhelming. Whether it’s because of something out of your control, such as loss of employment or a medical crisis, or from overspending and self-induced credit card debt, it’s not always the best solution. In fact, most bankruptcy cases can be avoided. Anyone who has been through bankruptcy can tell you what a devastating and life-changing event it was.
Bankruptcy in History
In the US, federal bankruptcy laws were temporary responses to bad economic times. The first bankruptcy law was enacted in 1800 in response to land speculation, but repealed 3 years later. Two more laws were enacted in the late 1800’s and also repealed. All these laws contained some allowance for discharge of unpaid debts for individuals and corporations. Modern bankruptcy laws emphasize reorganizing. In 1978, the laws were substantially reformed and it was at this time that Chapter 11 & 13 was established. Through the 80’s, 90’s, and since 2000, several more Acts have been passed to clarify rules and protect consumers. For more information, consult The Bankruptcy Yearbook & Almanac.
The Big Myth
Many people think that after bankruptcy you’ll be able to start over financially and have “clean slate.” The reality is that it causes long-term damage not only to your credit report, but to your psyche as well. Bankruptcy will stay on your credit report up to ten years. Even after that, loan applications and many job applications ask if you’ve ever filed. No matter how long ago the bankruptcy was, you’re obligated to answer “yes.” It stays in court records for twenty years. Also, it’s important to realize that not all debts can be discharged, such as alimony, child support, student loans, and most tax claims.
There are also other reasons to avoid bankruptcy that you may not have realized:
· More difficult to qualify for a mortgage or rent a home
· More difficult to qualify for an auto loan or other loans
· You’ll have higher interest rates
· May have to liquidate assets or set up a repayment plan
· Be subject to property repossession
· Time consuming and complicated process
· Prevent or slow personal goals
· Tarnish social status
· Damage business
· Damage marriages
The bottom line is that bankruptcy is not a wise solution for all debtors and it is followed by harmful consequences. The best debt solution is to put all your energy into a debt management program through a professional and licensed credit counseling agency. It’s their job to present a solution to your debt problem. With guidance, you’ll obtain the resources to become debt-free, your credit won’t be completely ruined, and you’ll gain peace of mind.