consumer debts

Being overwhelmed with debt is a horrible feeling. When you’re struggling to pay the bills and getting nowhere in the process, it’s normal to want to find a way out. This is why many debtors turn to bankruptcy.

Bankruptcy can certainly help alleviate your debt. Chapter 7 bankruptcy results in the discharge of most consumer debts, and Chapter 11 and 13 provide a way to repay a reduced amount to creditors on more favorable terms. It seems like a dream come true for the debt-weary. But is it?

Actually, bankruptcy has a number of negative effects that debtors should seriously consider before filing. Here are some of them.

* In Chapter 7 bankruptcy, you may lose some of your property. Certain items that are paid for are exempt, but non-exempt items may be sold to partially repay creditors. And unless you reaffirm and continue to make payments on secured debts, the collateral securing them may be repossessed. This includes your home if you have a mortgage and are behind on your payments.

* Some kinds of debts cannot be discharged by bankruptcy. These include child support, alimony and student loans in most cases. Some tax debts may also be ineligible for discharge, and legal settlements are often excluded.

* Bankruptcy is a matter of public record. This means that anyone who is interested can find out that you have filed. Bankruptcy is simply not something that one can keep a secret.

* You’ll have a hard time getting credit in the future if you file. Those who file for bankruptcy may have a hard time qualifying for a credit card or loan for several years. And when they are able to get one, in most cases they will pay much higher interest rates than someone who does not have a bankruptcy on his record. Bankruptcy remains on your credit report for up to ten years.

* Bankruptcy can affect your ability to rent a dwelling, get a cell phone and more. Landlords and service providers often run credit checks, and when they see a bankruptcy on your record, they may turn you down. Those who are accepted can expect to pay a larger deposit than normal.

* You might find it difficult to get a new job. Employers often run credit checks on prospective employees, especially when the job involves handling money or valuables. Those who have filed for bankruptcy are usually passed over in favor of those with better credit records.

There are alternatives to bankruptcy. Credit counseling can help you repay your debts more quickly with lower interest, and debt negotiation can lower the amount you owe. Examining these options before filing for bankruptcy could save you a great deal of anguish.