The Pros and Cons of Bankruptcy
I just answered a question about bankruptcy, so that got me to thinking about writing a factoid on the subject. For some bankruptcy can be a life rope thrown out to a person that is drowning in debt and cannot take care of themselves and their families due to the bill collectors calling you on the phone and knocking at your door. However, one should never enter into bankruptcy without first thinking about it long and hard. If you file bankruptcy, how will that make your life better in the long run? Bankruptcy is only beneficial if you manage to refrain from entering into more debt that you can't pay.
Here's the bad on bankruptcy: When you file bankruptcy you are more or less carrying a sign on your person that says "I'm not trustworthy. I don't pay my bills." When you go to a loan company to borrow money they ask you if you have ever filed bankruptcy. Some loan officers qualify their question with a time period. The person you are asking for a loan may ask you if you have filed bankruptcy in the last 10 or 12 years. If you answer "yes" to the question you have raised a red flag that you just might do it again. A bank may not trust you for a loan. There are some lenders that will lend to you after you have filed bankruptcy and enough time has elapsed.
Another negative point to filing bankruptcy is that it stays on your credit record for 7 years. Before putting such a negative mark on your credit rating you could possibly seek credit counseling. A credit counselor may guide you in the process of living within your means while paying down the old debt. Credit counselors may be able to negotiate lower payments with your creditors so that you can pay them off and restore your credit.
Here's the good side of bankruptcy: You can start out life with a clean slate. Declaring bankruptcy can clear away the mountain of debt, and if you are prudent with your spending you can remain in good standing without getting over your head again. After 18 months to 24 months a lender may agree to lend to you. You will most likely find that you will get a loan with a much higher interest rate than someone who has not declared bankruptcy. If you are faithful to make your payments on time every month, you may be able to re-negotiate your loan to a lower interest rate. The good thing about this is that you can put your credit rating back into pristine condition.
The bottom line is that if you are considering bankruptcy, let it be your last option. Besides being a negative mark on your credit history, there is also a negative psychological impact on some people. Most people are not proud to let people know they have declared bankruptcy. Bankruptcy is a tool to help you get out from a ton of debt that you are not solvent enough to pay. It's not a tool to allow you to run from your debts just so you can go back into debt all over again. If you plan to make a major purchase after declaring bankruptcy, you will have to pay the piper, but be patient and earn your credibility back.