Many look to bankruptcy as a solution to the overwhelming debt problems that they are facing. While bankruptcy may be necessary in some cases, you need to be aware of all of the drawbacks associated with it.
The most obvious negative ramification will be damage to your credit score. Your credit can be rebuilt even after bankruptcy, but it may take some time and dedication to accomplish this.
Still, if you’re drowning in debt and don’t have any other way out, your credit score is probably the least of your troubles. You’ll want to discuss your options thoroughly with a good lawyer.
Another important consideration is that bankruptcy will not eliminate all kinds of debts. In most cases, your student loans, taxes, child support obligations, and criminal fines will not be discharged in bankruptcy. If these fees represent the majority of your debt, then you simply may not benefit from filing bankruptcy.
Also, if you file chapter seven bankruptcy (the kind that gets rid of all of your debt), you’ll have to perform liquidation. This means that you might have to let go of some of your possessions to help pay off creditors, but the good news (or bad news depending on your perspective) is that you probably don’t have many valuable items to sell anyway. Most of the things you own are probably exempt or else not worth much to the creditors.
As far as your home is concerned, you need to discuss this thoroughly with your lawyer to understand the specific bankruptcy laws and homestead exemptions in your state.
One drawback of bankruptcy which you may not have considered is the effect that it will have on your creditors. I’m not simply talking about large, impersonal corporations like credit card companies.
In the end, you have to do what is best for the financial future of your family, but make sure that you consider all of your options carefully. Sometimes getting a part time job or negotiating with creditors is enough to handle your debt. If it isn’t, then bankruptcy might be appropriate.