Bankruptcy should ONLY be considered as a final, last resort for getting out of debt only after every other resource has been exhausted.  Bankruptcy is not the “get out of debt free” (or for nominal legal fees, actually) option it once was being used for and/or has been used for in the past.

Bankruptcy laws have undergone drastic changes within the past few years.  Simply filing for bankruptcy WILL NO LONGER guarantee that you will not have to repay any outstanding debts you owe.

Student loans, taxes, and other debts, such as those which occurred through or as a result of fraud, alimony and child support that you owe (and will STILL be expected to pay), and any money that you owe as a result of criminal or civil liability which was brought, and proven, against you will not “disappear” as a result of filing bankruptcy.  You will still have to pay these debts, and you can still be held responsible if you default on any of them.

There are different types of bankruptcy.  The most common ones are Chapter 7, Chapter 11, and Chapter 13.

Chapter 7 bankruptcy is considered the “worst” (as if any form of bankruptcy were good).  True, it gets rid of the majority of debts, except those in which the creditors request payment, and of course those mentioned above which cannot be discharged through bankruptcy; however, this form of bankruptcy can cause the most damage to your credit history, and should be avoided if at all possible.

Chapter 13 bankruptcy does not make debt “go away”; rather, debts are restructured, and more time is given to pay off creditors.  In addition, one may even be given a “grace period” before having to begin repayment of the restructured debts.  Small business owners and individuals avail themselves of this form most frequently.

Chapter 11 bankruptcy is the one you frequently hear about when a large business or corporation “goes under”.  It works along the same lines at Chapter 13 bankruptcy.

A bankruptcy will go on your credit report, and will remain on there for anywhere from seven to ten years.  During this time, it will not be impossible to obtain credit; however, you will most likely not get the best interest rates, nor might you be able to borrow as much as you need, if indeed you are able to borrow at all.

Some credit card companies, for example, do offer credit cards to those who have a bankruptcy on their credit report.  Because a credit card is required for so many things besides charging purchases (holding hotel or flight reservations, for instance), you might wish to go ahead and get one of these cards.

However, remember that the card is NOT to be used except in cases of extreme emergency, or for such uses as those mentioned above.  If you do get one of these cards, do something to make it harder than it would normally be to use it.  Either keep it “off-site”, to where it will require some effort just to get it in your possession, or do something so that you will not be tempted to use it.

The best way to avoid bankruptcy is to remain aware of your current financial status.  If you see that you are starting to fall seriously behind in your payments, immediately contact your creditors and see if you can work something out with them.  If you are honest with them, and get in touch with them before you are too delinquent, you might be pleasantly surprised at how willingly they will work with you.

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Tags: bankruptcy, credit cards, debt, student loans

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