Personal bankruptcy may sound like a way to deal with overwhelming debt, but it should only be considered as a last option. When you file for bankruptcy you will destroy your credit for at least a decade, be subjected to the whims of the Clerk of the Court and face additional hardships in your life from lack of credit.
There are two types of personal bankruptcy, Chapter 7 and Chapter 13. Chapter 7 is total liquidation bankruptcy, which wipes away all of your debts completely. The Clerk of the Court has the ability to sell your assets and personal belongings to cover your debts. Your credit score will take a 300 point plunge when you file this chapter of bankruptcy and you will spend the next ten years trying to clear your credit.
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Chapter 13 bankruptcy is a reorganization of your debts. This type of action is generally used when there is a home involved. The Clerk of the Court will examine your finances and restructure your bills into a court approved repayment plan. However, if the court finds they need to sell your personal effects to cover debts, they will. The court also has the ability to force you into Chapter 7 personal bankruptcy if they believe you do not have the financial capabilities to meet their repayment plan.
There are many other options available for debt relief that do not include personal bankruptcy. Debt consolidation or settlement programs often provide the assistance that is needed to regain financial control. Sometimes something as simple as debt counseling can solve personal financial troubles.
Following one of these alternative debt relief strategies will have less of an impact on your credit score. Utilizing one of these services will also help you rebuild your credit faster.
Personal bankruptcy should only be used if there are no other options available. Bankruptcy will stay with you for ten years, preventing you from recovering from your financial problems until it is erased from your credit. Having a large amount of debt is never good, but having a bankruptcy on your credit record is much worse.
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