Considering Filing For Bankruptcy? What You Need to Know

Considering Filing For Bankruptcy? What You Need to Know


Filing for bankruptcy isn’t an easy choice to make, but for some people it’s the best way to get out from under insurmountable debt from medical bills, family emergencies, unemployment, or overextended credit. It’s not a cure-all, though. Life after bankruptcy can be a long road to getting back on solid financial footing. 

That’s because bankruptcy can stay on your credit report for 7 to 10 years, making it difficult to borrow money and affecting your financial reputation—even impacting your ability to rent an apartment or land a job. 

First, know filing might not be your only option

Think of filing for bankruptcy as a last resort. First, look into these other steps you can take to help you avoid having to file. 

Talk to the lenders you owe

At the first sign of trouble, call your creditors, explain your situation and see what your options are. You may be able to negotiate a payment plan, or they offer to help in other ways, like reducing your interest rate or waiving fees. 

Don’t ignore the calls, e-mails, or letters from creditors. It can be tempting to bury your head in the sand, but they may be able to help. 

Develop and plan—and don’t borrow any more money

Avoid taking on any new debt at all costs. This is a time to dig yourself out, not make the hole bigger. To come up with a plan to pay back your creditors, meet with a non-profit financial or credit counselor. They may be able to help negotiate smaller payments for your unsecured debt (that is, debt that’s not attached to property like a home or a car). Talk to your bank to get a reliable reference for an agency that can help, and avoid firms that want to charge you for a percentage of your debt. 

Other resources: The National Foundation for Credit Counseling, Financial Counseling Association of America

Still think filing is your next step? Here are your options

The purpose of bankruptcy is to give you a fresh financial start, but it’s not without long-lasting repercussions. Know what you’re getting into and what to do to rebuild your financial life when you come out on the other side. 

There are two main types of personal bankruptcy: 

  • Chapter 7 is your quick, fresh start option, but expect almost all assets to be taken and sold off to pay back creditors. Also called a “straight bankruptcy,” a Chapter 7 may allow you to keep your home or car if payments are kept current, but if you own a company or inherited a family home, those are up for grabs. 
  • Chapter 13 is your best option if you have property you want to keep. Also known as a “reorganization bankruptcy,” this plan enables people with steady income to pay off their debts over three to five years with a court-approved plan while keeping creditors off your back, too. 

Bankruptcy laws differ from state to state and it’s a complicated process, so it’s a good idea to get advice from an attorney who specializes in bankruptcy. Try a free, confidential online bankruptcy evaluator to see which option may be best for you. 

Post-bankruptcy rules of thumb

If you’ve filed for Chapter 7 or Chapter 13, you’re probably already looking forward to putting it behind you. It won’t be easy, but these tips will help you stay the course. 
●Check your credit report regularly. As past debts are taken off your reports, double-check your credit report to make sure it’s accurate. 
●Rethink your financial habits. While it’s not always the case, if over-spending was your culprit, you don’t want to make the same mistake twice. Start a budget and live within your means. 
●Save whenever you can. Build up an emergency fund to make sure you’re better prepared to handle emergencies and challenging times in the future. 


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