Personal Bankruptcy
Has Far-Reaching Effects!
Personal bankruptcy in the U.S. has increased at an alarming rate. According to the American Bankruptcy Institute, U.S. bankruptcy filings exceeded two million in 2005, the highest number in history.
Bankruptcy can sneak up on you quickly, even if things seem good now. Here are the warning signs that you may be headed down the bankruptcy path...
You don't use a budget or money-spending plan
You spend more than 20% of your net income on credit card debt
You don't have an emergency fund set up
You take out an adjustable rate mortgage just to get lower monthly payments
You finance a car for six years or more
You charge groceries or utilities because you don't have the cash
 For anyone facing the prospect of personal bankruptcy or already in the process, life can be a living nightmare. Bankruptcy can devastate your career, destroy your marriage, and hurt your health and well being. Bankruptcy is a life-altering event that has long-lasting effects. Few people who have been through this process would say they were unscathed by bankruptcy.
There's an illusion that bankruptcy is an easy debt solution that gives you a fresh start. Nothing could be further from the truth. Sure, there may be situations where bankruptcy is the only remaining option, but it always comes with consequences.
There are two main types of personal bankruptcy:
Chapter 7 is the most common. It is considered total bankruptcy, and people who have little income and are deep in debt are usually the one's who declare it. Credit reports are affected for a period of 10 years. A Chapter 7 bankruptcy also involves the sale of most of your personal assets. However, certain obligations, like alimony, child support, student loans and taxes must continue to be paid.
Chapter 13 - also known as “wage earners” bankruptcy — is designed for people who have a regular source of income. This is often preferable to Chapter 7 because it allows the debtor to keep valuable assets like a house. Under this plan, a debtor repays debt over a period of time, typically, three to five years. While the plan is in effect, a debtor is protected from lawsuits, garnishments and other creditor actions. Credit reports are affected for seven years.
Recently, there was a major change in bankruptcy law that puts more responsibility on the debtor before he or she can even file. One stipulation, for example, is that the debtor must complete credit counseling from a government-approved organization within six months, before filing for any bankruptcy relief.
The bottom line is that personal bankruptcy is not an easy way to clean the slate and get a fresh start. It's painful, humiliating, and a huge disruption to almost anyone's life. And the rules are changing in favor of creditors — not debtors. Avoid it or consider it as a last resort.
Please look at other personal bankruptcy alternatives that I explain on this website. Even if you have no alternative, you should at least get another professional opinion. You have nothing to lose but 7—10 years of regret because you jumped on the Bankruptcy bandwagon before you explored all your other options. Click here for other articles I've written on bankruptcy
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