A Bankruptcy Lawyer’s Blog

How to Avoid Bankruptcy Unless Absolutely Necessary

One of the more common methods that homeowners use to get out from under a crushing debt burden is by filing bankruptcy. If they are unable to find some alternative, then this may be the only option available, due to a large amount of debt and an inability to pay it back in any reasonable manner. Consumers who are finding it more and more difficult even to make the minimum payments on credit cards or personal loans, and may fall behind on their mortgage if they face a serious financial hardship, may with to consider filing bankruptcy to get some relief.

Getting to this point where the debt is such a large problem that it will be almost impossible ever to pay it off is very often beyond a person’s control. The lure of easy credit creates temptations, which then lead to a dependency on credit just to make bill payments or pay the interest on other credit lines. Financial mismanagement and hardships may then combine to push the consumer over the edge. The list of potential hardships is nearly endless, from job loss to illness or disability to divorce and even home or car repairs.

Filing bankruptcy, although an option, should only be considered very carefully and it is not a magic bullet solution. Due to recent changes in the bankruptcy laws, it may be more difficult to meet the requirements to file Chapter 7 bankruptcy and discharge all of the unsecured loans, like credit cards and personal loans. The paperwork that will need to be filed is just as extensive as applying for a repayment plan from the original creditors. Bankruptcy also involves an entirely separate court system that will be involved. Consumers who do not meet all of the requirements under these new laws will simply not be able to have their debts discharged.

Consulting with a competent legal source should be the first step for most people in order to understand these laws. Because of the useless nature of legal language, it is specifically designed to keep out everyone who has not spent tens of thousands of dollars in an approved law school and taken a state-administered exam.

Bankruptcy is usually the last resort for most consumers with credit problems, as well it should be. The credit ramifications of filing bankruptcy can be quite severe, and it will appear on a credit report for seven years. This will make it more difficult to qualify for loans at any rate soon after filing, and will ensure that any creditors will request higher up-front fees or higher interest rates for years to come. Employees seeking a new job or moving up in a company can also be hampered because of bankruptcy, as more employers are now using credit checks to ensure that their workers are trustworthy.

Usually, a better solution is to research other options that will avoid bankruptcy, such as debt validation, consolidation, or simply working with the creditors for a more reasonable payment plan. Lenders can lower interest rates or accept less than the total amount they are owed, but consumers will have to request these solutions and be willing to work with their creditors. The long-term effects of filing bankruptcy often outweigh the relative benefits in all but the most serious cases, such as stopping a sheriff sale or saving a home from foreclosure.

Nick writes about credit and related matters for the ForeclosureFish website, which has been created to provide homeowners in danger of losing their houses with relevant and important foreclosure information and resources. The site describes various methods that may be used to save a home, as well as how to recover after facing foreclosure or other financial hardship, including bankruptcy. Visit the site to read more articles about how bankruptcy and foreclosure work and how to avoid them both: http://www.foreclosurefish.com/