Should filing for Bankruptcy be your first choice?

Should I file bankruptcy? This is the most common question asked by people who are struggling with debt. Bankruptcy, one of the oldest forms of credit card debt relief, has been in existence since about 1801. Congress adopted the bankruptcy code in 1978 in an attempt to make bankruptcy laws more uniform. This provided a way of helping people get the debt help they need and in many cases give them a fresh start. 

 
The two most common forms or Bankruptcy are chapter 7 and chapter 13. There is a stark difference between the two. Chapter 7 bankruptcy is a liquidation process. Liquidation involves appointing a trustee who collects all of the non-exempt assets and property from the debtor, sells it and distributes the proceeds to the creditors.  This is what most people think of when they think of Bankruptcy.

As with many things, people started to take advantage of this process and in 2005 congress amended the bankruptcy code with the “Bankruptcy Abuse Prevention and Consumer Protection Act”. These new changes made it more difficult to qualify for a chapter 7 Bankruptcy.

Under the new measures, most people only qualify for a chapter 13 bankruptcy. This is a repayment program where the court will determine exactly how much you have to pay back and for how long. It is possible that you might be required to pay back 100% of the debt using this process.

Of all the debt relief alternatives available to people, bankruptcy has the very longest effect on your credit rating. A Bankruptcy will remain on your credit report for up to ten years and will stay on your public record forever. This means that if you were to apply for a job or for new credit, and the application asks if you have ever filed for bankruptcy, you will be forced to answer yes. Having a bankruptcy on your record can also affect security clearance. Many jobs require a bank ground check for security clearance and many of these potential employers reject candidates who have bankruptcy on their record.

 
This is why it is best to explore all the alternatives to bankruptcy before you make the final decision to hire an attorney and pay the hefty retainer required to file for bankruptcy. Our debt analysts can review with you all of your options to see if there is another choice you can make to avoid filing for bankruptcy.