Seven Things To Consider Before Filing For Bankruptcy

With the economic recession straining budgets, a growing number of Americans are finding themselves faced with the decision of filing for bankruptcy. While bankruptcy is an option for unmanageable debt, legal changes have made filing for bankruptcy more difficult and expensive. Thus, before taking the final step and filing, here are seven factors to consider first:

1. Consider Your Budget

Before filing for bankruptcy, consumers are required to take a credit counseling class. The class is for the purpose of helping consumers examine their expenses and income, giving them a chance to consider if there is a way to absolve their debt with lifestyle changes.

2. Prioritize Payments

Most people who are considering bankruptcy are struggling to manage multiple debts. In order to manage debt effectively, it is important for people to prioritize their house and car payments, for these are most people’s most important assets.

Because credit card companies are so aggressive, many people find themselves bullied into paying off those debts first. In the long run, credit card debt is far less important than a person losing their home or car.

3. Are There Other Options?

Exhaust other options before filing for bankruptcy. Many people try debt settlement programs, or negotiating alternate payment plans with credit and loan lenders. For those who are unable to participate in these programs, for they either have no income or not enough income, there are still other options.

Consider asking family for monetary help, or asking to temporarily move in until debt is under control.

Or, look into title loan options like TitleMax. In many cases, paying a larger, higher interest loan off with a smaller interest loan will save money in the end.

4. Credit Score

Although most people who are close to filing for bankruptcy already have poor credit reports, a person should consider how bankruptcy would affect their credit report. Bankruptcy, under federal law, can be reported on a person’s credit report for up to 10 years while bad credit stays for about seven years.

5. Get Professional Help

Before determining what to do, talk with a financial advisor. Financial advisors can sit down and help a person map out their debt, their options, and provide a future look into their financial state.

If bankruptcy is the best course of action, then seek out a bankruptcy attorney. Most initial consults are free of charge, and there are many attorneys who are looking for pro-bono work.

6. Ignore Scams

Having help from an attorney and financial advisor can prevent a person from believing a debt scam. Many places that promise to resolve debt by half for free are usually scams, and leave people in worse financial condition than when they started.

7. Try To Keep Big Assets After Filing

Many worry that filing for bankruptcy will force creditors to come after their car or house. However, though laws vary by state, most people who file for bankruptcy are able to hang on to both assets.

Whether a person makes the decision to file or not, they should use this time as learning process in order to understand how to manage debt and become financially responsible.


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