If you are struggling with repaying your debts, you may have thought about going bankrupt. Filing for personal bankruptcy is not a decision you should take lightly as it will have an adverse effect on your credit score and could also hold other implications. For example some employers, particularly those in financial institutions, can have an issue with their staff declaring bankruptcy. It is a matter of public record if they cared to check although you are not usually obliged to bring it to their attention.
It is imperative that you use the services of a reputable bankruptcy attorney if you are considering taking this action. It is best to pay your attorney a fee for his or her time rather than agree to work on a no case no fee agreement. You want totally impartial advice based on your personal circumstances and it can be difficult to receive that if your attorney depends on you going ahead with a bankruptcy filing in order to get paid.
Do all credit card debts get wiped when claiming bankruptcy?
The answer depends on when you took out the credit cards. For example, most people when they are struggling to repay debts will undertake some form of credit card consolidation. This means that they could open a new credit card account and transfer their existing balances to this card. If you file for Chapter 7 liquidation or a Chapter 13 repayment plan within a certain time frame of opening this account, the money you owe to the new credit card company could become a non dischargeable debt. This is one example of why it is so important to get the right advice when you have problems with debt.
Not all credit counselors are acting on your behalf!
One of the conditions of filing for bankruptcy is that you seek advice from a credit counselor before claiming bankruptcy. Sometimes people can sort out their finances by speaking to a counselor who can help with having late payment fees refunded and arranging repayment terms. It depends on the qualifications and experience of the counselor and also whom they are working for. A lot of credit advisers work on behalf of your creditors. They get paid a % of the repayments you make after taking their advice so it is not in their interest to encourage you to file for bankruptcy.
Is claiming bankruptcy right for everyone?
Going bankrupt is not right for everyone but often it is the only sensible course of action. People can spend years living miserably under constant stress worrying about repaying debts they just cannot afford to repay. The new bankruptcy rules under the Bankruptcy Abuse and Consumer Protection Act that was enacted in 2005 has made claiming bankruptcy more complicated. Don’t make any decisions without first speaking to an attorney. Avoid any bankruptcy lawyer that tells you your case is simple as there is no such thing under the 2005 Act. Also avoid those who force you into making decisions you are not comfortable with. A good bankruptcy attorney will help you to sort out all the paperwork and will advise you on when to file for bankruptcy. Timing is very important. If you get the timing wrong you could find that not all of your debts are written off.
Whatever decision you make, never threaten a creditor that you will go bankrupt just to see what their reaction is. You do not want to push them into taking any legal action or give them a warning of your intentions.
Great article Chloe! It’s absolutely imperative that people understand the dangers of declaring bankruptcy. As you say, it can seem like a great way out of debt, but so often it simply leads people further into financial difficulties and can really mess up someone’s life.