Avoid bankruptcy and stop being such a loser
Bankruptcy is out there for a reason. It’s there so that people that can’t afford to pay their bills don’t have to go to prison.
You see, back in the old days, it used to be that you could go to jail just because you owed someone money. When Scrooge ranted about “prisons and poorhouses” in Dickens’ A Christmas Carol, he wasn’t bluffing.
Not too long before those days, in the old, OLD days, someone could actually “own” you and your family if you didn’t pay back a debt. You literally would become a slave until the creditor decided that you’d worked long enough to pay back what you owe.
Today, bankruptcy is preferable to jail or slavery. In fact, bankruptcy doesn’t even carry the same social stigma that it did just half a century ago. During the recent financial crisis, many respectable people have found themselves facing bankruptcy.
Bankruptcy eliminates many of your debts. To file, however, you’re required to liquidate your personal assets in order to pay off some of the debt. The bankruptcy trustee will actually sell the personal property, and then she will use it to pay your creditors.
There are some assets that are exempt, such as a percentage of your home equity. The laws regarding bankruptcy can vary greatly from one state to the next, as well.
There are some downsides to filing bankruptcy.
Your credit history will be injured. It’ll be hard to get a loan, mortgage or credit card. It will stay on your credit report for as long as 10 years.
Your loan rates will be higher. When you do get a loan, expect to pay more for it. The exception is a payday loan, which has astronomically high loan rates anyways and generally isn’t based at all on your actual credit history.
Your retirement accounts may not be protected. Some retirement assets like 401(k) accounts are protected, and so is up to $1 million in an IRA. However, the law requires that only those assets needed to support a filer and dependents are exempted, so you may only be able to keep a portion of an IRA account.
Bankruptcy isn’t easy anymore. The Bankruptcy Reform Act of 2005 made it harder to file for bankruptcy and added more types of debt to the list that can’t be filed on.
There may be alternatives. You might be able to negotiate with a creditor or even work with a credit counseling service. Make sure to explore all of your options before you commit.