There's no question that deciding whether or not to declare bankruptcy is a difficult, agonizing choice. A bankruptcy will affect your future credit, your relationships and your self-image. But it can also improve your short-term quality of life and possibly keep you from losing your home, car and other essentials.
Personal bankruptcy is generally considered the debt management tool of last resort because the results are long-lasting and far-reaching. It's the financial equivalent of major surgery -- not something you should undergo unless it's absolutely necessary. You need to study the pros and cons carefully before making a decision. Then, if you decide bankruptcy is the way to go, it's important to do it right. The following pages will help you do just that.
| CONS | PROS |
| • You will lose all your credit cards (unless you pay them off before filing.) You may also have to give up some luxury possessions. | • When you file bankruptcy, it stops all collection actions by creditors, including foreclosures, repossessions, and garnishments. If you have filed with an attorney, she or he shields you by handling all inquiries from creditors. |
| • A recent bankruptcy makes it nearly impossible to get a mortgage (although you should be able to do so within about five years). | • Most states allow you to exempt your home, car and other essentials, so you will not wind up homeless and unable to get around. |
| • A bankruptcy stays on your credit report for 10 years, making it difficult to acquire credit, buy a home or car, get life insurance, or sometimes get a job. | • Declaring bankruptcy now can get you started sooner on rebuilding your credit and your life. If there is another disaster, you may be able to amend your existing Chapter 13 plan to accommodate it. |
| • Not all debts may be "discharged" in a bankruptcy. Student loans and back taxes (within 3 years) are prime examples. | • While nothing will get rid of student loan debt, at least bankruptcy will prevent your lenders from aggressive collection action. |
| • Bankruptcy is an admission of defeat, an embarrassment. | • So is being sued for bad debts, having your car repossessed or your home foreclosed on. |
| • If I declare bankruptcy, my name will be in court records and may appear in the newspaper. | • If your creditors sue you, your name will be in court records and may appear in the newspaper. |
| • You will have to explain to a judge or trustee how you got into a financial mess. | • Both judges and trustees have heard far worse stories than yours. |
| • It will be a long time before you are able to get credit cards again. | • Good. Credit cards helped you get into this mess. They can get you into another one just as quickly. |
Next: The Different "Flavors" of Bankruptcy
