Bankruptcy is often mistakenly referred to as the nuclear option. Filing for bankruptcy can have an array of consequences, aside from the freedom from debt that comes along with bankruptcy.
The consequences
The first thing you need to realize, if you’re considering filing for bankruptcy, is the consequences that will come with that filing. This isn’t meant to discourage, only educate. Every individual who is faced with the decision to declare bankruptcy, has a different situation. Some people are able to sit down, look at the numbers, and figure out a way to make it work without filing for bankruptcy. Others simply cannot see a future outside of filing. Even if you don’t intend to ever file bankruptcy, it can be helpful to meet with a bankruptcy professional so you can understand which path is likely to lead to the quickest financial recovery.
It’s important to understand what your life will look like post-bankruptcy. The effect that it will have on your life can be substantial. Your filing can stay on your credit history for up to 10 years, although you can take steps to earn an excellent credit score within a couple years of filing bankruptcy. Many employers will do credit checks and won’t hire someone who has a bankruptcy or poor credit. Poor credit or bankruptcy can make it harder to find a new, good job to put you in a better financial situation. Unresolved credit problems can be just as damaging and often take much longer to recover from than bankruptcy. Bad credit or bankruptcy can cause your insurance premiums go up as well. In addition, your credit history can take a hit. The exact amount depends on what your credit score was before you declared bankruptcy. There are circumstances where the filing of the bankruptcy leads to a small improvement in your credit score.
Financial aspects
If you’re considering filing for bankruptcy, you should first sit down and be real with yourself about your debts. Figure out how much you owe, and calculate different interest rates and late fees incurred into this amount, as well. How high of a percentage of your income would you be able to, realistically, be able to dedicate to getting out of these debts? Do you have any wiggle room with your debtors, to delay payment so you can pay off one debt at a time? How many years would it realistically take to pay off the debts?
Emotional freedom
Overall, the deciding factor in this situation, is the emotional(as well as financial) freedom that you’re seeking. Drowning in debt is a helpless feeling, and it can weigh on you until you no longer feel like you can breathe. To rid yourself of this emotional burden, you need a plan of action. Whether that plan is to file bankruptcy, or to organize and pay off your debts, is up to you. Only you can decide which path is best for you, but in order to achieve that financial freedom you have to make a decision and commit yourself to it.