Is bankruptcy the right option for me?

Millions of debtors file for bankruptcy protection each year. While bankruptcy does offer a legal option to restructure your debts or have certain debts discharged, it's not always the best option for every debtor. Before you consider filing bankruptcy it's important to understand what bankruptcy can and cannot do.

Is bankruptcy right for me?

First, not all debtors will qualify for Chapter 7 bankruptcy. Updated bankruptcy laws have made it more difficult to have your qualified unsecured debts immediately discharged. Debtors who do not qualify for Chapter 7 bankruptcy will have to restructure their debts under a 3 or 5 year Chapter 13 bankruptcy repayment plan.

Next, not all debts are discharged through bankruptcy. Although Chapter 7 bankruptcy will discharge a variety of different types of unsecured debts such as medical bills, payday loans, and credit card debts, it will not discharge school loans (exceptions exist), child or spousal support payments, and most tax debts.

So whether or not bankruptcy is right for you will depend in large part on the types of debts you need discharged. If you have large tax debts, for instance, it may be better to talk to a tax consultant and negotiate directly with the IRS.

Long term consequences of bankruptcy

Next, before determining whether bankruptcy is right for you, it's important to determine the long-term ramifications of your decision. Did you know that filing bankruptcy will lower your credit score? Did you know it can make it difficult to buy a home or car? Did you know it will remain on your credit report for 7 to 10 years?

Filing bankruptcy is a serious decision; one which should not be made without considering all of your other financial options. Many debtors will benefit more from talking to a financial advisor, making a budget, and strategically repaying debts.

Moral considerations for filing bankruptcy

Overspending and living large is a real threat to the economy of the United States. First we have excessive spending at the federal level with a deficit which has reached $17,262,925,828,516. With an estimated population in the United States of 317,627,483, this means each and every citizen of the United States would need to pay $54,349.60 to pay off our national debt.

But the citizens of the United States are not making better personal decisions. According to a recent report by CNBC, "Consumer credit has surged past the $3 trillion mark in the second quarter of 2013 and continues on an upward trajectory. At $3.04 trillion, the total is up 22 percent over the past three years. Student loans are up a whopping 61 percent."

Before filing bankruptcy it's important to consider whether the debts you have accumulated were from bad decisions, which you are likely to make again, or whether the debts have accumulated from conditions which were beyond your control.

Filing bankruptcy again and again is not a good financial plan. If you have not analyzed your situation and developed a plan to avoid another financial crisis, it's time to take a step back and review other strategies before you file for bankruptcy.

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