• 30
  • November
    2011

A recent article in the Chicago Tribune emphasized the importance of looking at all the options on the table before individuals decide to file for personal bankruptcy.

The bottom line is that bankruptcy can certainly get you out of a difficult financial situation, but it doesn't get rid of all your financial problems. Those who've looked into or been through bankruptcy are already aware of this. For those who haven't, we'll take a quick look at some of the more sobering limitations and repercussions of bankruptcy.

Filing for bankruptcy isn't cheap. Since 2010, the number of total U.S. bankruptcies filed has fallen 8 percent. But according to many experts, the decrease is not a sign that consumers are doing better overall, but rather a sign that people cannot afford to file. Filing for Chapter 7 bankruptcy can cost between $1,000 and $2,500 upfront, which can be a lot for those who are struggling financially.

You will not necessarily be able to discharge all your debt. In Chapter 13, you will go on a repayment plan to pay back all or part of your debt. In Chapter 7 there is no repayment plan. You are able to keep your home, but unsecured debts will be discharged. Debt acquired in the 90 days prior to filing may be excluded from bankruptcy.

Chapter 7 bankruptcy will remain on your credit report for 10 years, and a Chapter 13 will remain on your report for seven years. But even beyond those time periods, the memory of the bankruptcy may not be forgotten as many loan applications will ask whether you've ever filed.

After bankruptcy, your chances of getting a loan are not killed, but your chances of getting a comfortable loan significantly suffer. High interest rates are a strong possibility.

There are a number of important considerations over whether it is right for you to file for bankruptcy. For some people it may not be such a great idea. For others, it makes sense. The important thing is to act appropriately for your situation, with an eye toward securing a better financial future for yourself.

Source: Chicago Tribune, "Understanding bankruptcy," Andrew Leckey, November 25, 2011.