Bankruptcy of course carries with it some measure of negative stigmatization. However, many people see it as a "get out of debt free" card, and it is far from that and is nothing that should be lightly entered into. Bankruptcy should always be a last resort because you are so overwhelmed by large debts that you foresee absolutely no chance of being able to repay them under your current circumstances.
In a Chapter 13 bankruptcy, you agree upon a settled amount that you are going to pay your creditors within a three to five year period. Under Chapter 13, it is possible for you to be forced to pay up to 100% of your income to the repayment of the agreed upon settlements, which the creditors usually demand be substantial (although sometimes only partial). You don't lose your assets like your home, car, or investments. This is typically the most advantageous form of bankruptcy an individual can find, especially if you have a high income, and it does ultimately the least damage to your credit.
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In Chapter 11 bankruptcy, you restructure your debts so that you can effectively manage them and get creditors paid off. Creditors often take a loss against what they would have received in order to receive more timely repayments of what they are going to get. Chapter 11 bankruptcy requires a lot of lawyer legwork and is the most expensive form of bankruptcy.
In Chapter 7 bankruptcy, all of your assets are liquidated to pay off your creditors. Those creditors such as mortgage holders who took the least risk in lending to you (that is, there was some collateral) get paid off first, and so on down to the riskiest creditors. This kind of bankruptcy is usually only used by business owners.
Debt management counseling programs are often a better solution than filing bankruptcy. These counseling programs do not adversely affect your credit score and they are a clear sign that you are going to try to repay your debts in full, although you may need to be given extra time to do this. Creditors typically want their principal and interest paid back to them instead of going through a court system where they have to spend time and energy trying to collect as much from you as they possibly can.
Debt settlement programs are also something that you probably want to try if debt management doesn't seem strong enough. Debt settlement programs will negatively affect your credit rating, but not nearly as badly or for as long as a bankruptcy. In debt management programs you hire a company to negotiate with your creditors to try to get them to take the lowest acceptable repayment options.
If you do decide that you have no way out but to file bankruptcy, you first must be prepared to go before a judge and be able to explain to how you screwed things up in the first place. Assuming you get a court order allowing to you file, you must then be prepared to lose all of your credit cards except possibly for those with a 0$ balance at the time of filing.
In addition, your credit report will show the bankruptcy for many years -- if it's absolute, 10 years; partial or settled repayments, seven years. This can affect your chances of getting a mortgage, other kinds of loans, future credit cards, and even a job -- although the last is entirely unfair. Bankruptcy is considered one of the five most traumatic things anyone can ever go through because it never entirely goes away. So consider all of the above options before you finally decide to file bankruptcy.
Is Bankruptcy Right For You? Talk to Bankruptcy Attorneys Free and Confidential. Licensed bankruptcy attorneys are available. Attorneys will call you to discuss your case for free. Find out if bankruptcy is right for your situation.
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