Discover Debt Freedom!

Bankruptcy may seem like an attractive option for relieving your debt problem, but there are many negative aspects to bankruptcy that are rarely considered when debating whether to file.  Bankruptcy is generally portrayed as a simple act of signing paperwork and watching your debts vanish while your credit score decreases for a couple of years.  Unfortunately, there are many other negative aspects to bankruptcy that you will experience when you decide to file.

Bankruptcy Remains In Your Credit History For At Least Seven Years

Although the process of filing for bankruptcy can be completed in a matter of months, the consequences of filing for bankruptcy can follow you for years.  A bankruptcy filing will remain in your credit history for a period of 7 to 10 years, allowing any creditor that pulls your credit report to see that you have filed for bankruptcy and evaluate the risk of extending credit to you.  Many creditors will not extend credit to an individual with a bankruptcy in their credit history.

Bankruptcy Filings Are Public Record

Filing for bankruptcy is a legal matter handled through the local court system of the area where you live, so after the bankruptcy is filed; it becomes a matter of public record.  This means that anyone searching for information about you will be able to see that you have filed for bankruptcy at some point in your life.  The information included in the public record will include your personally identifying information and the businesses involved in the bankruptcy filing.

Some Debts Are Not Discharged

While a bankruptcy filing can get rid of many of your debts, it will not erase all of the debts you owe.  Student loan debt cannot be discharged under a bankruptcy filing and unpaid income tax bills that are less than three years old will still need to be paid to Uncle Sam.  Medical bills, credit card debts, and most other unsecured debts can be discharged with a bankruptcy, but if you have these other types of debt, you may still have to pay plenty after you have filed.

One Good Thing About Bankruptcy

When other people go bankrupt, you can sometimes but some of their assets at great deals. This is also true for businesses. For example, many businesses have gotten great deals at Drilling Equipment Auctions and other business auctions.

Filing for bankruptcy is a stressful process felt by more than 1.5 million individuals every year, often at the end of a long, difficult period of trying to reduce debt levels to a manageable amount.  In most cases, many of the assets held by the person declaring bankruptcy will be taken by the trustee and sold to pay off creditors, but there are some assets that are protected when filing for bankruptcy.  The exact assets protected from seizure will vary depending on the state that you live in, but here are the assets that are protected in most areas.

Primary Residence

The decision of whether you will be able to keep your primary residence after bankruptcy will depend on a number of factors, including the size of the property, the amount owed on the home, and the state that the person lives in.  In some states, the amount of land around the home that can also be kept is specified in the bankruptcy rules and anything above that amount will be sold to pay off creditors.  It is important to read the bankruptcy rules for your particular state to find out whether or not you will be able to keep your home after declaring bankruptcy.

Tax Exempt Retirement Fund

The money that has been placed in a tax exempt retirement fund is legally protected from seizure to pay off creditors in a bankruptcy.  In most states, 401K’s, employer sponsored retirement plans, and individual retirement plans cannot be taken in bankruptcy court.  Some states cap the amount that is protected in an IRA at $1.17 million per person, with amounts above that seized to pay creditors.

Vehicle

Your primary vehicle may be protected from seizure if it meets certain criteria under the bankruptcy laws in your state.  Vehicles where the owner owes more than the value of the vehicle on the loan can generally be kept as long as the payments remain current.  Some states have an exemption limit for bankruptcy filings and vehicles that are paid off whose value is lower than this threshold may be kept.  Valuable vehicles that are paid off may be seized and sold to pay creditors.