Although many people think that filing for bankruptcy is the easy way out, bankruptcy isn’t an easy process, and it isn’t something that you should take lightly. It’s a serious decision that may carry long-lasting consequences.
In This Article
Reasons Not to Declare Bankruptcy
Here are five reasons why you shouldn’t file for bankruptcy:
1) It’s Expensive
Filing for bankruptcy comes at a cost. The court filing fee alone is typically at least $300. In addition, you may have to pay attorney fees on top of those costs. The prices vary depending on where you live, but they’re typically between $800 and $6,000 per case. On the other hand, filing bankruptcy to clear thousands of dollars in debt might be more beneficial compared to repaying your debts directly.
2) Your Credit Score Can Take a Hit
Your credit score will likely drop after filing for bankruptcy because it shows up on your credit report as a negative mark that can stay there for years after the discharge date (when all debts are finally discharged). Bankruptcy can also make it harder to get approved for loans or lines of credit.
For instance, if you are at the point in your life when you are hoping to acquire a mortgage for a new home or get past credit checks to rent a property or obtain a new job, declaring bankruptcy could harm your chances of passing this hurdle or at least require you to wait longer to apply for credit. Even years later, creditors may view you as high risk and frequently inquire whether you have ever filed for bankruptcy. However, someone who already has negative marks on their credit report may find that bankruptcy puts them on a faster path towards improving their credit.
3) Potential Loss of Assets
You may lose assets like your house or car. When you file for bankruptcy, all non-exempt property may be sold at auction (to pay off creditors) unless it is exempt under state law (which varies by state). Even if you don’t own much worth selling, the process could extend your bankruptcy case by months and may involve additional legal fees.
4. It May Not Erase All Debts
You might think filing for bankruptcy can wipe out all your debts, but this isn’t always the case. In most cases, it only eliminates certain types of debtors like medical bills or credit cards while leaving others intact.
For instance, settling unsecured debts such as those accrued on your credit cards, unsecured lines of credit, payday loans, and other personal loans is possible. However, you may not be able to discharge certain debts if you file for bankruptcy, such as court-ordered fines, alimony and child support payments, and fraud-related debts. Student loans are another category of debts that are typically not discharged in bankruptcy.
5. It Can Be Seen as an Act of Admitting Defeat
Some may view bankruptcy as an admission that you can no longer manage your finances and that your financial situation is beyond redemption. While this may be true for many people, others need more time to get back on their feet before making payments again.
In these situations, filing for bankruptcy may seem like the best solution (and it often is), but it does not necessarily solve the underlying difficulty. Even when things start looking up again, we must continue making intelligent financial decisions.
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What Can You Do to Avoid Bankruptcy?
Here are some things you can do to avoid bankruptcy:
- Pay off your credit card balances as soon as possible
- Contact creditors directly and ask them to lower interest rates and monthly payments or waive late fees and penalties.
- Get rid of high-interest rate credit cards and other unsecured debt, such as medical bills.
- Check into loan consolidation programs – they allow you to combine multiple debts into one new loan with a lower interest rate so you can pay off your loans faster and save money on interest charges.
- If possible, consider ways to increase income, such as taking on overtime work or getting a second job.
Seek the Help of a Bankruptcy Attorney
Bankruptcy law is complicated and involves many different factors. It’s almost impossible to understand all its nuances without the help of an attorney. A bankruptcy attorney can help you understand your options and find the best solution for your situation.
If you’re torn between filing for bankruptcy or why you shouldn’t file for bankruptcy at all, our bankruptcy lawyer can help you understand the situation better. Contact us online, and let us review your case for free.