The absolute last option to manage your debts is Bankruptcy. Why you ask? Well the answer is the lasting negative impact this option has on your credit report. A bankruptcy will stay on your credit report for 10 years and every lender you apply for a loan through will see this. The result is everything from a declined loan application to a loan with much higher rates than you would normally receive. In addition, anyone you authorize to pull your credit report will see this information. This could include a new employer you are seeking a job with! However, this option does provide substantial benefits if you are in severe financial trouble.
So what is bankruptcy? It is a legal proceeding through federal court that cancels many of your debts through a court order called a discharge. Additionally, this process serves your creditors by liquidating your non-exempt assets. The proceeds from this liquidation are then given to your creditors as final payment on your debts. This is not the actual process but it gives you the idea of the concept.
Exempt items you say! I see you did notice that word. Well, each state has their own rules governing this legal process, however most have exempt items. These are assets you are able to keep. They can include your home for example or possibly your car. You absolutely must check with your own State laws to know which items are and are not exempt. Bankruptcy is a complicated process and as a result I strongly urge you to seek the advice of a lawyer who specializes in this field.
As bad as I've made this option sound, it can and does serve as a fresh start to those who need it. After your discharge you will no longer have the overwhelming debt you had before. Not only that but due to the amount of people that have chossen this option an entire industry has arose to serve the needs of these people. In fact, Fannie Mae lending guidelines allow lenders to consider you for an A paper loan after only 2 years from your discharge. What does that mean you say? It means that after 2 years from your discharge, you can receive the same low rate home loans a person whose never been bankrupt has access to! Not to bad, huh? This is in no way a statement to make light of this option. It is only to show those of you who need this step, that life does continue afterwards!
As an additional note, recently Congress passed updated bankruptcy guidelines that limit your ability to remove many of your debt obligations. This includes many credit card debts and as a result it is more important than ever to consult with a lawyer who handles these situations.
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