Making late payments does more than ruin your credit. It creates stress and anxiety as you wonder how to pay the bills each month. You avoid answering the phone for fear it might be another aggressive bill collector. This can cause a loss of sleep, impact your appetite and result in an overall decline in health.
Having to decide whether to pay rent or a credit card is not a situation anyone plans for. Yet millions find themselves struggling with these very decisions. When this happens, you feel desperate to find a solution.
Suitability: For those who have sought other debt relief options and discovered you do not qualify because your income is not high enough and/or your credit is too poor, bankruptcy may be an alternative. If the majority of your debt is unsecured, meaning credit card, medical and other similar accounts, then a chapter 7 bankruptcy may be your best option. If you own your own home and are facing foreclosure a chapter 13 bankruptcy may be the best option.
Bankruptcy might be the best solution if you are unable to make minimum payments or are frequently late paying your bills. Having income that is not expected to increase in the near future will mean your financial situation is likely to get worse, not better. If your health or financial situation eliminates the possibility of taking a second job, getting a promotion or other strategies to increase your income, bankruptcy may be the best avenue to debt relief. However, due to the long term damage to your credit, opting for bankruptcy should only be considered as a last resort as negative information will remain on your credit report for 7-10 years depending on the type of bankruptcy relief you choose.
Benefits of Filing Bankruptcy
• Relief from bills and collection calls.
• Debt will either be discharged or restructured. Discharged debt does not need to be repaid and restructured debt will offer better terms.
• A chance to start over enabling you to pay your essentials like housing, food and utilities before your unsecured debt.
• Ruined credit will be able to rebound after 7-10 years, once the bankruptcy is complete.
Challenges of Filing Bankruptcy
• Must be able to pay your attorney expenses, filings fees and court costs associated with filing bankruptcy.
• May be required to sell some assets, though you generally can keep one vehicle, your home, and some personal assets.
• Must qualify by passing a financial means test depending on the type of bankruptcy you are seeking and you must have a long term financial crisis.
• The bankruptcy will be reported on your credit report and impact your score for 7-10 years.
• Since a bankruptcy will remain on your credit report for 7-10 years, it can affect your ability to get a job, obtain new credit, increase the cost of some insurance products and purchase or refinance a home.
How to Find Success with Bankruptcy
Step 1: Evaluate finances and contact a debt relief agency to determine if other debt options are available. Debt negotiation, credit card modification and credit counseling programs will have a smaller impact on credit than a bankruptcy, but you must demonstrate you can qualify for these programs by showing a minimum level of income depending on each program’s requirements.
Step 2: If bankruptcy is recommended, meet with an attorney and give them an accurate view of your finances. DO NOT give away, retitle or sell assets or make large payments towards a single debt. This might be viewed as fraud and could impact your filing. The attorney will know the laws in your state and the look back period.
Step 3: Follow the attorney’s instructions. The attorney will know the rules of your state. If you don’t completely trust them, find another attorney. If you do trust them, listen to them and follow their advice.
Step 4: Begin rebuilding credit by paying any remaining bills (like student loans, car or house payments) on time every month. It will be several years before you will qualify for credit again, and on time payments will get your credit report and credit score back on track the fastest.
Filing bankruptcy is a major decision and should only be considered after all other options have been exhausted. Do not plan on making any purchases on credit for 3 to 4 years. After that, if you have maintained a clean record since the filing, you may be able to qualify for additional credit.