Avoid Bankruptcy


Bankruptcy is the last resort to get out of debt due to it's irreparable damage. Here are 7 reasons to avoid filing bankruptcy:

 

Your credit is badly hit: Chapter 7 bankruptcy filing does have a negative effect on your credit. It brings down your credit score by around 200-250 points. Moreover, the negative entry stays on your credit report for 7-10 years thereby making it difficult for you to qualify for new loans and credit for the next 3-4 years.
 

You may lose your property: There are certain assets which cannot be protected under bankruptcy laws. You are likely to lose such assets if you cannot avoid personal bankruptcy. This is so because the assets are sold off (if you've filed Chapter 7 bankruptcy) to pay back your dues. So, unless you qualify for federal/state exemptions, you may even lose your home/car if you're not avoiding bankruptcy.

 

Not all debts can be eliminated: It's a myth that Chapter 7 can help you get rid of all types of debts. However, this isn't true because you cannot wipe out back taxes, student loans and other unpaid dues simply by filing Chapter 7. Thus, it makes sense to avoid bankruptcy. What you can do is, negotiate a debt settlement or an alternative payment plan with your creditors.
 

Creditors/lenders may repossess property: Even if you've filed bankruptcy, there's a chance that your creditors/lenders may repossess or foreclose property on which they hold a lien. This is because bankruptcy relieves you from the personal liability to repay debt. But unless you reaffirm and try to pay down the entire balance, creditors/lenders have the right to repossess or foreclose property as there's already a lien on it.

 

Adverse effect on your finances: Bankruptcy has an adverse effect on your financial situation. For instance, you won't be able to buy or even rent a home/car. Filing bankruptcy can also influence the status of your security clearance. However, this will depend more upon whether you've filed bankruptcy on account of financial responsibility or due to an unexpected event.

 

You may not qualify for new credit: Getting an approval for new loans/credit is tough after you've filed bankruptcy. It'll take at least 2-4 years in order to qualify for a secured loan (such as mortgage, car loan etc). Even unsecured loans are hardly available if you cannot avoid bankruptcy. However, you may qualify for a secured credit card. But you may have to pay higher fees when you apply for one.

 

Not all retirement plans are protected: It's true that bankruptcy laws protect 401k retirement plans. The laws also protect $1 Million in your IRA account but any amount beyond the limit may be used to pay off your debts. So, if you wish to protect your retirement savings, find out how to avoid bankruptcy with any of the 5 alternatives given below.