Bankruptcy - Chapter 7 & Chapter 13

Long Term Effects

Keep in mind, bankruptcy doesn't come without some trade offs. Often times, you see advertisements promoting bankruptcy as "fast and easy", but that generally applies to the lawyer who files on your behalf, not you. Your lawyer isn't the one who has to live with the stigma of filing for up to 7-10 years.

Filing puts the world on notice about your personal financial affairs. Since its a civil court proceeding, it becomes a matter of public record. In some cases, (chapter 13) even your employer can be involved because this chapter requires deductions from you paycheck.

Bankruptcy also stays on your credit report for up to 10 years and can hinder your ability to get a job, establish new credit, get insurance and even a place to live. You will also have to pay court, attorney and filing fees up front. Furthermore, you will lose control over your finances since a Trustee will be appointed to oversee the completion of your filing. Trustees don't come cheap either. They charge an average of 8% to oversee the successful discharge of your bankruptcy petition.

(Example: $25,000 (total debt) x .08 (Trustee Fee) = $2,000 plus attorney, court and filing fees)

This in addition to the fact that filing doesn't necessarily get you out of all your obligations, bankruptcy may not be that end-all solution that its portrayed to be.

Other Alternatives

* You can simply walk away? If you have no assets, creditor can't attach any property. Unless a creditor has a substantial amount invested in you and/or your state prohibits garnishment of wages, you probably don't have anything to worry about. However, you should be prepared for collection attempts via phone and mail, and threats of lawsuits if you decide to go this route. This is not a recommended way to deal with your obligations.

* You can try to deal with the creditors yourself and work out a new payment plan.

* You can try to budget your expenses and live a more frugal lifestyle, or take on a second job to bring in more income.

* You can contact one of the many debt consolidation / credit counseling services that specialize in helping consumer with credit problems.