Is Bankruptcy a Good Idea for You?

The decision to file for bankruptcy is a serious one and there are a number of considerations worth examining closely before getting started. At outset it is worth considering whether a bankruptcy is appropriate at all. Because of the serious impact on your future ability to access credit and the potential loss of assets bankruptcy may be best avoided, where that is possible.

Those considering bankruptcy should also carefully consider the kinds of bankruptcy available. As a threshold question it is important to determine whether you are even eligible for one or another form of bankruptcy. Also, depending on which form of bankruptcy you choose important and valuable assets may be lost or retained. There are also significant differences in the time and expense associated with one or another form of bankruptcy.

Considering other impacts can be critical in deciding whether to file for bankruptcy or which form is a better option. Some bankruptcies may fail to discharge credit card debts, impact your pension plans or other assets, or create financial issues for co-signers. Finally, bankruptcy involves a significant invasion of your personal privacy and the exposure of your financial life may impact the desirability of the relief provided.

What Happens After a Chapter 7 Bankruptcy?

Those who pursue a Chapter 7 bankruptcy should be aware of some potential problems or concerns. Many forms of debt cannot be discharged under Chapter 7 bankruptcy, including government funded student loans, some forms of tax debt, federal tax liens, child support, alimony, spousal support, debts for personal injury or death arising from a motor vehicle accident, fines and penalties for violating the law, certain tax-advantaged retirement plans, and cooperative housing fees are among the debts that cannot be discharged.

Potential applicants for Chapter 7 bankruptcy should be aware that even private student loans are rarely discharged without a special showing of undue hardship, such as may arise where a debtor has become permanently disabled and cannot work. Applicants for this and other forms of bankruptcy should also carefully consider the impact the bankruptcy will have on their credit.

Following a bankruptcy, debtors may need to engage in a process with the credit bureau in order to correct any inaccurate reports from former creditors. This can entail contacting former creditors for verification of the satisfaction of debts. Even when these issues are resolved those who have completed a bankruptcy can still expect to pay higher credit rates, higher down payments, or need to produce a co-signer when attempting to secure new credit. These complications may necessitate the retention of a mortgage broker when seeking to purchase a house.

Have Questions About the Benefits of Bankruptcy?