When your monthly bills are more than you can manage, bankruptcy may seem like your only way to get out of debt. But while bankruptcy can provide debt relief to consumers who can’t pay their bills, it’s a complex legal process that can seriously impact your credit for up to a decade. Before you decide to pursue bankruptcy, it’s important to explore alternative solutions, and to understand the process and the potential ramifications of filing for bankruptcy.
Before You File for Bankruptcy
When you can’t pay your bills, is bankruptcy the only solution? Talking to your creditors could be a better first option. They may be willing to work out a payment plan that’s more manageable for you. A government-approved credit counselor or credit repair company may also be able to help you negotiate a debt-repayment plan with your creditors. You might also research debt consolidation to see if it’s right for your situation.
If you decide to file for bankruptcy, you’ll have to meet certain criteria and fulfill specific requirements. According to the Federal Trade Commission, before you can file for bankruptcy you will need to undergo credit counseling from a government-approved organization no more than 180 days before you file, and take a debtor education course.
Types of Bankruptcy
Most consumers who declare bankruptcy do so under Chapters 7 or 13 of the federal Bankruptcy Code. You’ll have to file in federal bankruptcy court and will be responsible for filing fees (several hundred dollars) and your attorney’s fees.
The Potential Impact of Bankruptcy
All types of bankruptcies are legal actions that will show up on your credit report, where they can be seen by potential lenders and other creditors, such as landlords, insurance companies, mobile service providers and possibly even a future employer. Negative information on your credit report can make it more difficult to obtain credit, or to obtain it at favorable rates. While unpaid bills can negatively impact your credit, a bankruptcy can be a much bigger strike against you. Before filing for bankruptcy, get professional advice and review all your options.