Is Bankruptcy the Answer?

Weight of the World on Your ShouldersAre you considering bankruptcy as a solution to your financial woes? Bankruptcy is a very serious issue, so consider all of your options before you take action. Here are some steps to take before you file, courtesy of

  1. Pull a credit report first.  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.
  2. Consider all other options first.
    • 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. Pros: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.
  3. 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.
  4. 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.
  5. 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.
  6. 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.

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