One of the biggest myths is that if you file for bankruptcy you will be financially free and no longer have debt problems. Wrong! Bankruptcy is not the cure-all for getting out of debt. Over a million Americans file for bankruptcy every year. One in every 73 households files for bankruptcy. In 2005, 2 million Americans filed for personal bankruptcies. Millions of Americans are in debt and get in debt every year. Many people think that filing for bankruptcy will solve all of their debt problems. On the surface it seems that if you file for bankruptcy all of your debt will be eliminated and you can start with a clean slate. Actually it is not that simple.
To file for personal bankruptcy you must reside in a state for 90 days prior to filing and have a total unsecured debt less than $290,525 or secured debt less than $871,550. The new bankruptcy law that went into effect in October 2005 states that debtors (consumers) who earn less than the median income in their state about 80 percent of those who file for bankruptcy still would be entitled to file under Chapter 7. But those who earn more than that and who have the ability to repay at least $6,000 over five years would have to file under Chapter 13, which requires a repayment plan.
Although it is true that after you file for bankruptcy you can purchase a house or a car, what people don’t realize it that the interest rate that you will be given will be very high. Also, based on the new bankruptcy law implemented in October 2005, it is harder to file for bankruptcy and depending on the type of bankruptcy granted it will remain on your credit report for seven to ten years. This greatly lowers your credit score and it will probably take about 3 to 5 years before you score increases due to the bankruptcy filed and provided that you don’t get into any further debt.
Consider what would happen if you neglect to make a payment on the repayment plan which is created by your local court house. If you miss a payment on your repayment plan your case will be dismissed and you will have to find a way to pay your debts on your end.
When you have financial problems and can’t see any way out bankruptcy looks like the best option but there are many other options available to you. If you have a house you can take out an equity loan to pay your debts, you can reduce your expenses and create a budget for yourself, you can get a part-time job, go to school and further your education and get additional training related to your particular job, setup payment plans with your creditors or sell some of your assets if you have any. Use If you do not receive a steady paycheck or have your own business one month or for several months you may not earn enough money to pay your monthly chapter 13 reorganization payment. Only use bankruptcy as an absolute last resort any only if you have a steady job. You need to have steady employment for the Chapter 13 reorganization plan. Good luck!
Please write me to tell me about your credit repair and financial crisis stories. The best story received will be published in my February newsletter. Send stories to info@hefreemanenterprises and put in the Subject Line "Blog Financial Crisis Story Contest".
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