| Topic - Is Bankruptcy for You? | Education Center |
Could it be that times are so tough? That seems unlikely, since the U.S. is riding atop one of the biggest economic booms in its history. And when you consider that the number of American businesses filing for bankruptcy in 1998 (44,367) was only slightly larger than the number that filed in 1980 (43,694), it's clear that the epidemic is not related to the U.S. economy.
As the stigma that used to surround personal bankruptcy filing has diminished, more and more Americans have looked to bankruptcy for a second financial chance. For many of these people, bankruptcy is their only option; the sudden loss of a job or a catastrophic illness can wreak havoc with even the best-laid financial plans. But for others, bankruptcy is an "escape hatch" that seems to supply a quick fix but instead only provides years of additional financial headaches.
What is bankruptcy?
Bankruptcy is a legal procedure intended to give a fresh start to people who cannot pay their bills. However, it is a serious step and should only be taken as a last resort if there are no other options available.
Three types of bankruptcy are available.
All three types of bankruptcy may get rid of unsecured debts (those where creditors have no rights to specific property) and stop foreclosures, repossessions, garnishment of wages, utility service cancellations and activities of debt collectors against you. Chapter 7 and 13 bankruptcies provide exemptions that allow you to keep certain assets, though those exemption amounts vary greatly from state to state.
You must file a bankruptcy claim in federal court. The filing fee is under $200 and sometimes may be paid in installments. You may face other costs, as well, such as for the services of a bankruptcy lawyer. Finding a competent lawyer is another matter, since many disreputable ones make easy money by handling hundreds of bankruptcy cases at a time without giving any of them adequate attention. You should seek referrals from people you know and trust.
Another option is to find a public legal service that handles bankruptcy cases without charging lawyers' fees. Those programs might be able to recommend a private bankruptcy lawyer for you, as well. Keep in mind that the fees of these lawyers vary widely but may range from $400 to $1,000 or more, depending on the complexity of your case. Always discuss fees up front and ask whether you can pay in installments.
The down sides of bankruptcy
Bankruptcy cannot clean up a bad credit record and will be part of your record for up to 10 years. You may find it difficult or impossible to get a mortgage or credit card while your bankruptcy appears on your credit report. Certain debts cannot be forgiven by bankruptcy proceeding, such as taxes, alimony, child support, student loans and some property settlements. Debts that result from fraud, willful or malicious injury, certain fines or penalties and claims incurred from driving under the influence of alcohol or drugs also cannot be discharged by bankruptcy.
However, laws forbid discrimination against people who have declared bankruptcy. You can not be denied a job, be denied or evicted from public housing, or be denied a driver's license just because you filed for bankruptcy.
Although bankruptcy can relieve the pressures of overwhelming debt by providing a fresh start, it should always be seen as a last resort, after other attempts to solve a financial crisis fail. It's probably a good idea to discuss your situation with a credit counselor or a lawyer to see whether you really need to file bankruptcy or whether an agreement can be reached with your creditors. The National Foundation for Consumer Credit can refer you to a credit counselor. Call (800) 388-2227, 24 hours a day, for an office near you.