Filing For Bankruptcy - Is It Time for a Fresh Start? by Jeremy Nelson

Filing for bankruptcy can be a way to get a fresh start financially. How so? Because chapter 7 bankruptcy is a legal procedure which enables you, a debtor, to discharge outstanding debts that you feel you are no longer able to pay. To qualify for relief under this law, your financial circumstances must meet certain criteria. Also only certain types of debt are dischargeable. Debts which may not be erased include student loans, taxes, alimony and child support.
The process begins when you or your attorney file a "petition for relief" with the bankruptcy court. Once the petition is filed, creditors are automatically prohibited from calling or in any way contacting you, and otherwise pursuing or continuing any legal action against you or your property unless they get authorization from the court. Thus, collection calls, lawsuits, wage garnishments, repossessions and foreclosure are stopped immediately. But what may cause you to consider filing for bankruptcy as an option?
Causes of bankruptcy
Causes of bankruptcy are not necessarily poor money management, but may include loss of job, divorce, medical problems resulting in excessive medical bills, or a combination of these factors. For instance, loss of your job may also mean loss of medical insurance and this may just coincide with a major medical situation. More recently, rising mortgage payments in a falling real estate market have forced many people into bankruptcy. But what other effects will bankruptcy have on your financial affairs?
Effects of filing for bankruptcy
The chances are that if you are considering bankruptcy, your credit will never be worse than it is right now. But bankruptcy is reported to the credit bureaus and will appear on your credit report for up ten years. A potential lender who sees a bankruptcy as a part of your credit file may view it as a negative item, worse than delinquencies or accounts in collections. It will have a negative effect on your credit score since a credit score is derived from the information on your credit report. Bankruptcy could possibly reduce a credit score by 100 or more points.
Keep in mind that Chapter 7 bankruptcy may not relieve you of all your debts. Therefore it is the course of wisdom to consult an attorney to determine how secured debts, debts obtained with a cosigner, and other types of debts are handled. In general debts such as taxes, student loans, child support, and alimony cannot be discharged under this filing for bankruptcy. So it's important that you make payments for these types of obligations on time since delinquencies could continue to be reported to credit bureaus and further impact your credit score. Bankruptcy may make it more difficult for you to obtain credit, buy a home, and get insurance in the future soon after filing. Credit that you are able to obtain may be from sub prime lenders that carry a higher interest rate.
Furthermore, with the easy access to information provided by the Internet and with more employers doing background checks when determining your qualifications for a job, a bankruptcy filing can have even more of a long-term impact.
So while filing bankruptcy can bring relief from overwhelming debt you are not able to repay, it does have its disadvantages and long term consequences and should therefore be carefully considered. Re-establishing good credit after bankruptcy is quite possible although it may take time. Also some lending institutions will take into account the factors that led to your bankruptcy when evaluating a loan application.
The court hearing
After you or your attorney has filed the petition with the local bankruptcy court a date will be set for the hearing. At this meeting the trustee (the person appointed by the court to sell non-exempt assets) will examine the debtor by asking a few questions and no appearance before the judge is necessary. Creditors may show up at this meeting but this is usually rare.
No doubt, with increasing economic pressures, we will continue to see more and more bankruptcy filings by individuals in financial distress. Careful evaluation of your circumstances and the potential impact of filing for bankruptcy will enable you to decide if a chapter 7 filing is the best course for you.