Should You File for Bankruptcy?

Woman Concerned About her Finances

Sometimes money woes can seem simply overwhelming. Maybe you have so much debt that you simply cannot imagine any feasible way of climbing out of that hole. In these situations, bankruptcy may seem like the only option left. Is it really your best solution?

While bankruptcy can help you discharge some (though not all!) of your debt, it will also really hurt your credit score and could make it difficult or even impossible for you to get a car loan or home loan in the near future. Landlords and even prospective employers can pull your credit history, so a bankruptcy could even hurt your housing and job prospects!

Before you file for bankruptcy, take a look at this article to see if there might be a better road toward financial stability. (Tips are courtesy of

First: Pull a credit report

Visit to get your free credit report. Confirm that all information is accurate and use the report to be certain all your creditors are included in your bankruptcy filing.

Next: Review all the options

Creditor negotiation

Try calling creditors and asking for temporary hardship status. Some creditors may work out payment plans.

  • Pro: Can provide longer payment terms.
  • Con: Individual consumers may find it difficult to negotiate effectively with large creditors.

Credit Counseling

It is important to be careful when choosing a credit counseling agency, as many agencies receive funding from creditors and may have incentives that are not in alignment with their customers.

  • Pro: Lower monthly payments.
  • Con: Up to five years of making payments. Monthly payments may not significantly decrease. Enrollment in credit counseling appears as a negative on a consumer’s credit report.

Debt Resolution

Debt resolution firms negotiate with creditors on your behalf to lower principal amounts due, and they collect a fee for their services.

  • Pro: Savings can often reach up to half the full amount owed. It is the fastest way out of debt without Chapter 7 bankruptcy, and you can be out of debt within three years.
  • Con: It can impair your credit score and may not be able to stop collection calls.

Chapter 7 Bankruptcy

Chapter 7 filing eliminates most consumer debt, but a “means test” determines whether you will qualify for Chapter 7 based on your average monthly income over the past five years.

  • Pro: Eliminates debt and can be quickly discharged.
  • Con: Creates a major black mark on your credit report for at least seven years. Many filers lose homes and personal property.

Chapter 13 Bankruptcy

Chapter 13 filing re­quires you to repay debt on a repayment plan if you have enough in­come to pay back at least some of your debt.

  • Pro: May reduce debt and stop collection calls.
  • Con: The bankruptcy judgment remains on your credit report for at least seven years. Repayment terms generally are less favorable than those found with debt resolution.

Some Final Thoughts

Don’t wait too long
Bankruptcy laws were put in place to help protect your remaining assets in the face of overwhelming financial problems. If there is no other way out, file soon, before you lose precious assets.

Save money to file
Filers must pay court fees and costs for mandatory credit counseling sessions before filing, so be sure you have the resources to follow through before you start the process.

Do not try to go it alone.
Bankruptcy laws are complicated, so consider hiring an attorney to file bankruptcy for you. As with everything else, those professional fees can be expensive.

Inform creditors and collectors.
Once you have filed for bankruptcy, let your creditors know. At that point, the debt collector is required to quit calling you.

Bankruptcy is not the end of the world. Once you’ve gone through the process, it is possible to begin building your credit back up again, though it is likely to take several years of consistent, on-time payments. As you begin to recover from your bankruptcy, make sure you consider what negative money habits might have caused you to go into debt in the first place. Starting a Money Club near you could help you learn new, positive money habits that can help you get back on the road to a positive financial future.

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2 thoughts on “Should You File for Bankruptcy?”

  1. Connie Rodgersq

    How will I receive health benefits; I never net 4 quarters of social security and did not sign up at 65 – never thought it necessary after 40+ years marrage.

    1. According to the Social Security Administration, in order to qualify for Medicare using your ex-spouse’s employment history after a divorce, you must meet the following conditions:

      Your marriage must have lasted at least 10 years or longer.
      You must be currently unmarried.
      You have reached the age of 62.
      Your ex-spouse is entitled to Social Security Retirement or disability benefits.
      The benefit you would receive based on your own work is less than the benefit you would receive based on your ex-spouse’s work
      If all of those conditions apply, you may be entitled to premium-free Part A and Part B coverage with the same premium that all enrollees must pay for Part B coverage.

      If neither you nor your ex-spouse meet the eligibility requirements for Medicare, you may still be able to purchase Part A after paying the applicable premium.

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