4 Reasons Why It’s Worthwhile to Avoid Bankruptcy

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If you think about getting rid of debt as a spectrum, do-it-yourself debt repayment is at one end and bankruptcy is at the other. The latter strategy is typically regarded as the most drastic approach to getting rid of debt — and for good reason.

While it’s totally understandable that people deep in debt may gravitate toward a heavy-duty solution like bankruptcy, it’s important to understand the consequences before deciding to file. Bankruptcy is less a “get out of debt free card” and more a difficult trade-off with pros and cons to consider.

Here are four reasons why it’s worthwhile to avoid bankruptcy if you have any other options.

Bankruptcy Lingers on Credit History

Bankruptcy will stain your credit history for years to come, possibly even making it difficult for you to qualify for new credit in the future. How long does bankruptcy stay on a credit report? Either seven or 10 years, depending on the type you file (more on what the different types entail later). After seven or 10 years, the bankruptcy public record will drop off your credit report automatically.

You May Have to Liquidate Your Assets

Bankruptcy is not without sacrifice in the form of assets. After all, your creditors still want you to pay off as much as you possibly can — which sometimes means selling your property. This is part of the reason it’s advisable to check out all your other options first. For instance, many people who have undergone debt settlement cite they did so in in Freedom Debt Relief reviews partially because it helped them avoid the more drastic effects of bankruptcy.

Chapter 7 bankruptcy involves liquidation, which means selling off assets to fulfill as much of your obligation to creditors as possible. However, as ProPublica writes, 95 percent of Chapter 7 cases involve debtors whose assets are valued below their state’s legal threshold — which means most people who file for this type are able to discharge their debts without having to give up their property.

Chapter 13 bankruptcy involves coming up with a repayment plan, also known as consolidating debt and making a single monthly payment to the court until an agreed-upon portion of the total debts have been repaid. You can expect Chapter 13 payments to last three to five years.

There’s No Guarantee All Your Debts Will Disappear

The risky thing about declaring bankruptcy is that there’s actually no guarantee all your debts will disappear.

First of all, only certain types of debt are eligible. Credit reporting agency Experian notes the following types of debt cannot be forgiven:

  • Most types of student loan debt
  • Court-ordered alimony and child support
  • Government and court fines/penalties
  • Taxes owed to the government

Even after filing for bankruptcy, some percentage of consumers will not see their debts discharged. That’s right — even after doing all that work, you may see your discharge denied. This is why it’s so important to be completely transparent and honest throughout the process to give yourself the highest chances of succeeding. Many consumers have also found it helpful to have an attorney representing them rather than trying to go it alone.

It Costs Money to File for Bankruptcy

It can cost a chunk of change to file for bankruptcy.

According to Nolo, consumers filing for bankruptcy can expect these charges when filing:

  • Filing fee: About $335 for Chapter 7 or $310 for Chapter 13
  • Required counseling courses: Two sessions, each $60 (or less)
  • Hiring a lawyer: Average flat fee between $1,000 and $1,750

For these reasons, it’s worthwhile to avoid bankruptcy if another option is available to you.

Author: Dexter Sinistri

Dexter Sinistri is a famously centrist writer who has worked as a Hollywood correspondent for a number of leading publications since 2005. Though once a photographer, Mr. Sinistri struck out as a writer on all things celebrity, and he likes to consider himself a tremendous asset to Glossy News, though by most accounts, he has fallen somewhat short of this effort.