One of the biggest lies is that if you file for bankruptcy, you will be financially free and no longer have debt problems. Wrong! Filing for bankruptcy is not the only way to get out of debt. Every year, more than a million people in the U.S. file for bankruptcy. One out of every 73 homes declares bankruptcy. In 2005, 2 million Americans went bankrupt on their own.
Millions of Americans have debt, and every year, more and more of them do. Many people think that declaring bankruptcy will solve all of their debt problems. At first glance, it might look like if you file for bankruptcy, all of your debts will be gone and you can start over. In fact, it's not that easy.
To file for personal bankruptcy, you must have lived in a state for the past 90 days and have less than $290,525 in unsecured debt or less than $871,550 in secured debt. The new bankruptcy law that went into effect in October 2005 says that debtors (consumers) who earn less than the median income in their state, which is about 80% of those who file for bankruptcy, can still file under Chapter 7. But people who make more than that and can pay back at least $6,000 over five years would have to file under Chapter 13, which requires a repayment plan.
Even though you can buy a house or car after filing for bankruptcy, most people don't realise that the interest rate you will be given will be very high. Also, since the new bankruptcy law went into effect in October 2005, it is harder to file for bankruptcy, and depending on the type of bankruptcy you get, it will stay on your credit report for seven to ten years. This hurts your credit score a lot, and it will probably be 3 to 5 years before it goes back up, assuming you don't get into any more debt.
When you're having money problems and can't see a way out, bankruptcy may seem like the best option, but you have many others. If you own a home, you can get a home equity loan to pay off your debts. You can also cut your spending and make a budget, get a part-time job, go back to school and get more education or training related to your job, set up a payment plan with your creditors, or sell some of your assets.
The best consumer is one who knows what to buy. If you are having trouble with money, the first and best thing to do is to do some research and find out what your options are. Next, you need to figure out what you own and what you owe. Your assets are things like stocks, bonds, your 401(k), retirement plans, etc. that you do not owe money on. Your liabilities are things like a house, investment property, boat, car, etc. that you owe money on. This will help you figure out if you have any assets you can sell or use as collateral to get money to pay off your debts. Next, you need to make a budget so you can see how much money is coming in (how much you get paid each week) and how much is going out (what you spend) (how much you pay each month in bills and expenses).
If you don't have much money or any assets, you'll need to make some quick changes, like bringing your lunch to work, carpooling, taking the subway or bus to work, riding your bike or motorcycle to work, eating breakfast at home, renting movies instead of going to the movies or going to the movies less often, cancelling your pager or cell phone service or switching to the cheapest plan available.
These things will give you extra money quickly until you come up with a plan for paying your bills. If you've looked into all of your options and found that you can't use any of them, bankruptcy should be your last choice, not your first.
Getting into debt is the worst thing that can happen, but you can get past it with time. Before you file for bankruptcy, give it a lot of thought. It might not be worth all of the trouble.
