Debt Management | Reasons not to File Bankruptcy

Although bankruptcy does give you the chance to start anew financially, there are still a lot of reasons why you should not. The most important ones are outlined below:

1.       Bankruptcy leaves a negative mark on your credit report. You might be able to discharge all your unsecured debts under Chapter 7 but you will have to live with this derogatory listing in your credit report for the next ten years (a Chapter 13 will stay for only seven years). It can lower your credit score and impact your chances of obtaining a mortgage, car loans, and other types of loans. This single act alone brands you as financially irresponsible and a high credit risk. This is not permanent, however. With sound financial management, your credit score will improve in time. But if there are things you can do to avoid going this route you should take it before considering a bankruptcy filing.

2.       It is not suited for everybody. Just because you are hearing calls from debt collectors left and right does not mean that you should immediately file. Generally, if you still have income and have less than $5,000 in unsecured debt, bankruptcy may not be a wise decision. However, those with debts less than this amount but want to save their house from foreclosure or a vehicle from repossession will consider bankruptcy a very viable alternative. Each case varies so you will have to take a long hard look at your finances to determine if it is right for you.

3.       It requires full disclosure of all your income, assets, and debts. If you are not comfortable with this idea, it might be better to consider other options, especially if you have some properties that you want to protect from your creditors.

4.       Your filing becomes part of the public record. Anyone who wants to obtain information about you and your bankruptcy filing can do so. Even prospective employers or business clients will know about it if they do a background check on you. These can negatively impact your personal and financial future.

5.       You have exhausted the only legal means of protection from financial disaster in the coming years. Generally, you cannot file again in the next six years. Even if you do your best to avert another debt crisis after your bankruptcy petition, you’ll never know if you will be involved in situations where you will be required to pay a huge sum in damages. Where will you turn to then?

6.       Your bankruptcy filing could affect other people. In a Chapter 7, co-signers in some of the loans you took out will still be liable for your debt even if you are already legally free from it. Unless you want to destroy relationships you have built over the years and contribute to their own difficulties, you should think your decision through many times over.

7.       Bankruptcy is a personal loss. Yes, you might lose all your debts when you get them discharged but it will be a loss to you. It’s an admission that you were remiss in managing your personal life and your finances. If you still have the chance to pay off your creditors without resorting to bankruptcy, you should take it. It will mean keeping your dignity and self-respect intact.

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