Despite how hard we try, there are times when our finances don't go the way that we want. Whether it's due to a catastrophe, a job loss, or some other situation, many people are left wondering if filing for bankruptcy protection is the right choice for them.
If your finances have gotten to the point that bankruptcy is being considered, first take a look at all the pros and cons associated with it. There may be more options that you have yet to consider.
There are quite a few different chapters of bankruptcy that you can file. Since most people file for their personal finances (under chapter 7 bankruptcy), that is what we will look at.
The Good of Filing for Bankruptcy:
- Your bankruptcy procedure shouldn't take more than a few months
- Your unsecured debts will be wiped out
- Collections actions against you are stopped
- Your home, car, and some essentials are likely exempt
- The process will be over soon and you can start rebuilding credit
The Bad of Filing for Bankruptcy:
- You may have trouble getting approved for new credit cards
- Bankruptcy won't wipe out secured debt (car loans & mortgages), back taxes, or student loan debt
- You may have trouble securing a mortgage
- It can cost you a lot of money in fees
Filing for bankruptcy is not something to be considered if you are simply struggling to pay your bills. It is a last resort when all of your other financial options have been exhausted. As you can see, the only good that will come of it is that your unsecured debts (like credit cards) will be wiped out. But if you owe other money, they will most likely still be around.
Since the pitfalls of filing for bankruptcy far outweigh the perks, you should look at some alternatives and keep this as the last resort.
You Have Alternatives to Filing for Bankruptcy Protection!
When you are in trouble financially, there are several options for you to pull yourself up and get back on top of your debts.
Slash Expenses and Work Harder – If you have read very much on personal finance, you likely know about the side hustle. Essentially it's another job that you do in addition to your full-time day job that brings in more money. Combine that with slashing all unnecessary expenses and you likely will be able to pay off your debt, keep your dignity, and keep your credit score up. It could take a few years of saving and working hard, but it may be worth it in the long run.
Hire a Debt Counselor – Sometimes our debts aren't too much to handle financially, but emotionally they are. With the help of a debt counselor you can get everything in order, create a plan to wipe out your debt, and get back on top of your bills without filing for bankruptcy protection.
Consolidate Your Debt – When you have multiple debts, it can be expensive to keep them all separate. Depending on your interest rates, you may want to consolidate your debts. There are many companies that offer debt consolidation services, or you can do it yourself with a personal loan or a home equity line of credit (if you qualify).
Avoid Bankruptcy at All Costs
Bankruptcy is a quick fix with a long solution. Filing will end up making your financial life pretty miserable for the next decade. It should be avoided at all costs. Instead, use one of the options above, and then stay on top of your finances so that you don't have to worry about this dilemma down the road.