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Bankruptcy - Your Fresh Start - Part One

Bankruptcy Can Ease Tremendous Emotional & Financial Burdens, But at a Price

Bankruptcy was America's answer to debtor's prisons. Before the Revolution, if you couldn't pay your debts, you went to jail

until you or one of your relatives satisfied your creditors.

But I don't think that our founding fathers meant for bankruptcy to become an easy way to walk away from debt. Originally it was considered a last resort and carried substantial social and financial stigma.

People use to commit suicide rather than face bankruptcy. After the Great Depression, many spent the rest of their lives repaying debts that had been discharged in bankruptcy.

But Bankruptcy is the law and it is meant to help those with unpayable debt get a fresh start.

Too many American consumers are living too close to the edge. They are carrying too much credit card and mortgage debt and have too little in the way of savings. When the inevitable unexpected crisis comes along, they have little or nothing left to fall back on and quickly slip into a critical financial state.

According to many bankruptcy experts, most people file for bankruptcy due to life-changing experiences, such as a job loss, divorce or serious illness. Uninsured medical expenses are supposedly the cause of about 20% of bankruptcy filings. But excessive debt also plays a very large role.

If you are drowning in debt with little realistic hope of paying off your bills, bankruptcy is your only real option. Although far from pleasant, bankruptcy can be easier to handle than the constant pressure put on you by lenders and collection agencies.

You can immediately stop all harassment and legal actions, wipe out a good deal of your debt and get a new start on life.

The anomalies of credit scoring also work against debtors struggling to pay off debt. Your score will be low because of excessive use of debt and missed payments.

You?re unlikely to get new credit and the interest rates on your credit cards might be raised to usurious levels. You are likely to have a better credit score and find it easier to get credit ? very expensive credit - after bankruptcy than before.

Also the stigma and embarrassment that used to accompany bankruptcy has largely disappeared. To too many, it has become just another financial planning tool.

Is Bankruptcy for You?

There is no simple answer to that question.

If you're behind because you're temporarily unemployed, what happens if you can't find work after the bankruptcy? You will still continue to pile up bills, but will no longer have any way around them.

Also, if potential employers check your credit report, you might not get a job at all. So the answer is maybe not.

If you've got many thousands of dollars of unpaid medical bills on top of a mortgage and car loan and there's just no way you're ever going to pay it all, bankruptcy is probably the only way out.

In spite of the seeming ease with which you can get a discharge of your debts, it still should be your last option, especially if you have valuable assets you want to protect.

Changes in the bankruptcy law, enacted in 2005, require a consultation with a credit counselor before you can file for bankruptcy. The counselor will tell you which chapter you can file under.

Use this consultation to see if you have any alternatives. At this stage you need objective, impersonal advice to help you make the right decision. The counselor may know of options you haven't considered or he may be able to work with creditors to help buy you time to get your affairs back in order.

For a consultation with a local bankruptcy attorney, click here.

For more information about bankruptcy and the bankruptcy procedure, go to part two of Bankruptcy.