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Numerous individuals consider bankruptcy as a simple way to offload out of control debts, and it's regularly the first method they reach for. It may well relieve the burden, however it's not straightforward and should to be the final choice.

Although legally it is relatively easy to apply for bankruptcy, as with any legal proceeding, it is far from painless.

You will have to validate your filing, highlighting all your financial records to a judge and exposing it to objections by the credit agencies. If you have a large debt, they are not likely to happily settle with a token gesture of repayment.

Even if your application is successful, there are many knock on effects that you'll want to understand prior to taking this step.

You will forfeit any credit cards that have outstanding balances, and others may choose to close your accounts. You'll also find it all but impossible to source a home loan or other large secured loans. Depending on your family situation, it's possible that you may even lose your home.

Not all debts are covered by a bankruptcy filing. You need to review details carefully as many credit and loans can be exempt from protection.

Even after you have completed the official time for bankruptcy, you could still find that your credit record is in bad shape and obtaining any form of credit in all the future may be extremely hard. Of course, this could be a blessing in disguise.

Since you won't have access to credit cards, this can actually be an advantage. Unfortunately, there are some people who simply should not have access to easy credit, until they can improve their financial management.

Beyond the impact on your ability to get credit, you may in fact be required to forfeit physical assets, for example valuable furniture, jewellery or your car.

Lastly, bankruptcy itself is not free. Courts have fees to pay and, if you use a lawyer, that too will add further costs.

On a positive note, you will seek relief from debt collection visits (provided they are told) and any foreclosure action can cease. By taking action sooner rather than later, you can start to build a new credit history that can be better than you had previously.

It can be a huge wakeup call to improve any bad money management habits. For some people, they need to go as low as possible before finding the necessary motivation to make the necessary changes. However, going for bankruptcy can be hard, so think through thoroughly and seek expert advice prior to taking the plunge.

About The Author
Derek Rogers represents Trapped.co.uk.

Before considering bankruptcy, you should review other debt management options.

If you own a home and you need a lot of money to help with the bills and you dont want to lose your home try refinancing your home or try to get a home equity loan. These are usually most helpful in these types of situations. If you decide to refinance try to get the best interest rate as possible or you are likely to end up in the same if not worse position you were in before.

Most people take out a second mortgage to help but this can be tricky, if you get the second mortgage, some people feel like they have extra money to burn and while they do pay the bills they find the extra money is useful by going shopping or taking a vacation and then you are left with two mortgages you cant pay.

The next way to avoid bankruptcy is to possible borrow from a 401 K plan or a retirement fund you may have. It really isnt recommended that you do this because some people feel like they will have nothing for when they retire so they are reluctant to touch their 401s but if you have a nice size amount of change there and it would help a lot of your problems then do it. Thinking about the future is great but what happens if you lose everything in the present that will definitely affect your future.

Another way to avoid bankruptcy is to get help. Contact a non profit organization that requires no money to change hands. These are excellent places for people who are struggling with their finances to get some help. They will help you figure out what your expenses are and what you can do to offset these bills. For example, some may recommend better or additional employment; others may encourage you to file for public assistance such as food stamps until you get back on your feet. Temporary solutions until you are in a better financial place.

There are some people in this world who are very proud and very independent; this step to help avoid bankruptcy is always accept help. If family or friends can help you in any way let them. If you live alone and you need to save money maybe moving back in with mom and dad will save you hundreds of dollars a month. If you want a second job but need a babysitter a friend or family offers to babysit, let them. In tough times everyone one needs all the help they can get.

The last way to help you avoid bankruptcy is to cut things out. For example, if you eat out 3 times a week, try only eating out once if you have to eat out at all. Try to cut back on things like cigarettes, not only are they too expensive but they are bad for you as well. Save as much as you can in any area that you can and you will see a difference at the end of the week or month when you have extra money to help pay your bills.

Many people think that if they have been forced to declare bankruptcy, their lives are basically over from a financial standpoint. This can be the case if you let it, but if you are willing to work at it, this does not need to be the case at all, and you can get get a car loan after bankruptcy if you are willing to put some research time into it.

First you need to consider the reason that you filed for bankruptcy. Yes, the fact that you filed is going to show up as a huge red flag in your credit report, but was there a logical reason? Was it due to medical expenses, serious illness, or something along those lines? You see, you are allowed to make a consumer statement that becomes part of your credit report with the credit bureaus, and you should file this consumer statement with each of the three credit bureaus Equifax, TransUnion, and Experian. In this consumer statement, you will briefly describe the valid reason that you needed to file for bankruptcy. Do not get flowery or wordy, just outline the facts because you are limited to the number of characters this statement can contain.

Now that consumer statement, hopefully combined with a superb payment history for your pre bankruptcy and post bankruptcy debts, are going to shed new light on your application, and chances are good that you can get approved for a car loan after bankruptcy.

While the major lending institutions can be machines and not consider anything except the bare bones data, some of them and especially the secondary lending institutions will take the time to read ALL the facts regarding your credit, including your consumer statement which will outline the valid reason that you filed bankruptcy. This can be a bit of the human touch into the equation and make for a much better outcome for you.