When a typical consumer cannot see a way out from under a mountain of debt, bankruptcy may be considered. This is typically not the result of poor financial management, but rather a change in circumstances beyond the consumer's control, such as a job loss, divorce, or high medical expenses.
Despite what your peers may have said, this procedure will not be simple. In the past, declaring insolvency was nearly as simple as playing Monopoly and required little additional effort. Today, however, there are a vast number of forms to be filled out, each requiring extensive information about your obligations.
This mountain of forms and applications must be filled out correctly and thoroughly, but that does not guarantee bankruptcy filing. Before approving your bankruptcy petition, the courts will examine your documentation and finances in great detail. Yes, it must be approved by the court, and there is a possibility that you will be unable to file for bankruptcy if it is not approved.
You must have a thorough comprehension of the origins of all your debts. Certain debts, such as tax liens and student loans, cannot be discharged by filing for bankruptcy. If a significant portion of your overall debt is comprised of non-dischargeable debts, there is little to be gained by filing for bankruptcy.
Another disadvantage that you may have already considered is the fact that a bankruptcy filing will remain on your credit report for the next seven to ten years. That does not mean you will never be able to obtain credit again, but it will be significantly more difficult and challenging, and the interest rate you will be charged will be higher to reflect the fact that the lender is aware of your bankruptcy filing and considers you a higher risk.
Are you truly ready to liquidate or dispose of the majority of your assets? This is a requirement of Chapter 7 bankruptcy that cannot be avoided. One option is to consider a different chapter, but with the other consumer-typical chapter of bankruptcy, your debt is not eliminated, but rather reorganized with reduced interest rates and monthly payments. While this may provide you with the necessary financial breathing room, your debt remains and your assets are not liquidated.
Filing Chapter 7 bankruptcy is not a simple task, and especially with the new laws, it is strongly advised that you hire a reputable bankruptcy attorney to handle the paperwork, make intelligent suggestions, and examine alternatives. After all is said and done, the money you spend on an attorney will likely more than compensate for itself in terms of the time and assets you are able to retain.
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