Most people, once they’ve made their way through the bankruptcy process, prefer to put it behind them and never think about it again. There are some lessons that can be learned from going through bankruptcy that can be helpful for other people, though, to help keep them from having to declare bankruptcy. And if it becomes necessary, to file sooner, when it’s easier to recover.
Careful With Credit Cards
A few of the major reasons people get deep in debt are medical bills, small business loans, and credit card debt. Medical bills can be hard to avoid. Illnesses can’t be left untreated, and the costs of healthcare pile up fast. Small businesses can be risky, and even a good idea can fail for reasons beyond your control.
Credit card debt, however, is manageable and usually unnecessary. Credit cards can be an attractive way to live beyond your means and giving them up can be hard. But what you’ll be giving up is the stress of keeping up with payments and the headaches of constantly trying to catch up with payments. Paying with cash keeps you within a budget and is cheaper in the long run.
If you do use credit cards, it’s better to think of them as very short term loans. Don’t carry a balance month to month, as the interest can mount up quickly. In other words, don’t buy anything you can’t afford to pay for.
Speaking of Credit…
If you do have to file bankruptcy, don’t delay. Start looking into it and considering this option as soon as you get in over your head. Don’t struggle to make payments, borrow more money, and dig a deeper hole to avoid filing.
One of the big reasons people hesitate to file for bankruptcy is that they’re afraid it will ruin their credit for years, possibly forever. The truth is that with careful management and some better habits, your credit score can climb back up into decent territory in a few years.
Even a recent bankruptcy may not be as bad as you think. It most likely won’t keep credit card companies from sending you offers. It may not even keep you from getting a loan, depending on other circumstances.
You’ll Still Have Some Debt
The point of bankruptcy is to deal with debt and discharge it so that it’s not hanging over your head and preventing you from living your life. Medical bills can be easily taken care of through bankruptcy, as can credit card debt, payday loans, and most other common types of debt. It does not clear all debt, however.
Student loans are notoriously difficult to discharge in bankruptcy though recent rules may make that easier. Some other types of debt, such as spousal or child support, cannot be discharged in bankruptcy. The fact of the matter is that while it may be a good option and help you regain control of your life, you can expect to come through the process still owing some money.
It’s Not as Expensive as You Think
A lawyer is usually a good idea when filing or thinking about filing for bankruptcy. You’ll also have to pay court costs and fees. That all can sound like it adds up pretty quickly. Courts, lawmakers, and lawyers all understand that, almost by definition, people who are thinking of filing for bankruptcy don’t have a lot of money, though.
The total cost will usually come in under $1000. More complicated cases will obviously require more of the lawyer and court’s time, and will be more expensive. But for most people, it will not cost much. You can also get help from legal clinics and by working with pro bono lawyers.
It’s Not As Scary As You Think
For most people, the bankruptcy process is straightforward and only takes a few months. At its simplest, it will require a few meetings with your lawyer and perhaps a couple of appearances before a judge. File in the spring and you can be back to having manageable finances by the fall.
You’ll also be able to keep most or all of your belongings. If you file for Chapter 7 bankruptcy, your assets may be sold to help pay off a portion of your debts. However, there are some exemptions written into bankruptcy laws. These exemptions allow you to keep up to a certain value of equity in your home and car. They also allow you to keep a certain value of personal and business items.
For most people, this will allow them to keep just about all of their personal belongings and perhaps even their home and car. You may be able to keep everything.
No one is claiming that bankruptcy is fun or easy. However, it may sometimes be necessary, and it can be an experience that can help you in the future.
This article by Chris Rollins first appeared on Abelmann Rollins and was distributed by the Personal Finance Syndication Network.
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