Bankruptcy

Bankruptcy – Counting The Cost Before Filing

Filing for Bankruptcy may ask more of you than what you might at first assume to be the case. When people are under pressure, they will often consider options that they might not usually consider, for the simple reason that the financial pressure begs for relief in any way possible. While bankruptcy certainly provides that relief, and is indeed in the best interests of the majority of filers, you should consider what the process is going to require of you before filing, as well as understand what the consequences of filing for bankruptcy are likely to be.

First, it should be stressed that filing for bankruptcy should really be seen as a last resort. There are long-term consequences to filing that may outweigh the relief to be had, as we will outline shortly. Other options exist that may bring sufficient relief without the costs associated with having a bankruptcy on your credit record. Some of these include consumer credit counseling, debt settlement and loan modification.

While consumer credit counseling is certainly an option for some people, most people won’t see a payment reduction, merely a reduction in the length of time it takes to payoff all the principal; this is something that benefits the creditor more than the debtor; indeed, most consumer credit counseling agencies are simply fronts for creditors, who are giving themselves a much bigger break than they are giving you: Reducing a 30% card to 15% is still a profitable venture for them. For this reason alone, we encourage people to seek debt settlement instead, as ultimately the problem for most people is simply having to much debt. If your problem lies in the size of your mortgage, then procuring a loan modification may be a better choice for you.

The first and most obvious cost of filing for bankruptcy are the legal fees. In most states, the costs of the Chapter 7 Bankruptcy process will run around $1000.00; for Chapter 13, the costs are considerably more, in the $2300 to $3000.00 range. However, most bankruptcy attorneys will accept $1000 down for the Chapter 13, then roll the balance into the proceeds that are paid over the course of three to five years to your creditors.

The second most obvious cost is the hit your credit score will take. Bankruptcy filing will remain on your credit record for up to 10 years. The good news is that, will deliberate effort on your part, you can have good credit in 2 years or less after filing. With proper planning, the credit hit isn’t as impactful or as long lasting as some may have been led to believe.

Less obvious costs come in the form of various organizations that make use of your credit score. This may be a rental agency, your cell phone company, your insurance company, or even a prospective employer. Many think that if they have a bad credit score, they won’t be eligible to work for certain companies or positions; this is, in fact, true. What is not true, however, is the range of companies and positions that your working for would actually be affected. Typically, only financial companies, or agencies requiring top secret clearance, care too much about your credit score; most other companies don’t look at it nor consider it.

You may be required to pay a larger deposit if using a rental agency, but many private landlords won’t count it against you if you are upfront about it. Insurance companies my try and jack your rates; if they do, simply by shopping around you’ll usually find an agent who will not. As far as cell phones, if you go with a standard cell phone carrier – Sprint, Verizon – they will probably try and milk you for a huge deposit, just because they can. Your best option when asked for a $500.00 deposit is simply to get a Tracfone or similar pay-as-you-go plan.

Only after you have considered all these factors, and weighed them against the amount of debt and payment relief you will receive, should you consider filing for bankruptcy. Obviously, if you are $200,000 in the hole, and will save $2000 a month from filing, then it is probably in your best interests; there are ways of working around credit issues, as millions of Americans are now discovering. Each individual case, however, is different, and you should sit down with a good bankruptcy lawyer before coming to any final decisions.
The second most obvious cost is the hit your credit score will take. Bankruptcy filing will remain on your credit record for up to 10 years. The good news is that, will deliberate effort on your part, you can have good credit in 2 years or less after filing. With proper planning, the credit hit isn’t as impactful or as long lasting as some may have been led to believe.

Less obvious costs come in the form of various organizations that make use of your credit score. This may be a rental agency, your cell phone company, your insurance company, or even a prospective employer. Many think that if they have a bad credit score, they won’t be eligible to work for certain companies or positions; this is, in fact, true. What is not true, however, is the range of companies and positions that your working for would actually be affected. Typically, only financial companies, or agencies requiring top secret clearance, care too much about your credit score; most other companies don’t look at it nor consider it.

You may be required to pay a larger deposit if using a rental agency, but many private landlords won’t count it against you if you are upfront about it. Insurance companies my try and jack your rates; if they do, simply by shopping around you’ll usually find an agent who will not. As far as cell phones, if you go with a standard cell phone carrier – Sprint, Verizon – they will probably try and milk you for a huge deposit, just because they can. Your best option when asked for a $500.00 deposit is simply to get a Tracfone or similar pay-as-you-go plan.

Only after you have considered all these factors, and weighed them against the amount of debt and payment relief you will receive, should you consider filing for bankruptcy. Obviously, if you are $200,000 in the hole, and will save $2000 a month from filing, then it is probably in your best interests; there are ways of working around credit issues, as millions of Americans are now discovering. Each individual case, however, is different, and you should sit down with a good bankruptcy lawyer before coming to any final decisions.