Monday, September 24, 2007

When to Know It's Time to File for Bankruptcy

The decision to file bankruptcy is a tough one, and a bankruptcy has long-term consequences. Creditors will report the bankruptcy to the credit bureaus and your credit score will decrease. For this reason, reserve bankruptcy as a last resort to turn to for a fresh start only after you've exhausted every other option.

Overwhelming Debt

    When credit card debt, medical bills and loan payments are wreaking havoc on your finances and morale -- when illness or job loss have complicated things further -- it may be reasonable to look for a way out, even if it involves some negatives. Some creditors work with consumers to provide affordable loan terms and solutions. When, however, it is apparent that there is no way to meet the terms offered, bankruptcy can begin to seem like an attractive, logical solution worth taking a look at.

Facing Loss of Property

    Getting behind on payments to creditors and home lenders can result in loss of personal property which can include your home or any other item pledged as collateral for a loan. Lenders have the legal right to take items used as collateral for loans in order to recoup their loss if you default. Filing for bankruptcy protection can stop foreclosures and repossession and help you retain your personal property. Speak with a lawyer for additional information on how to file bankruptcy and keep your residence.

Ready to Start Over

    Having a strong desire simply to start over is a top reason for some consumer bankruptcy filings. Wiping out debt gives consumers the opportunity to acquire new credit accounts and manage their debts more efficiently. While credit scores do drop after a bankruptcy, recovery is possible with wiser credit habits and smart debt management. Consumers can open a high-interest new line of credit immediately following a bankruptcy and with good payment habits (no late or skipped payments) can increase their score and possibly qualify for a mortgage loan after two years.

Bankruptcy Warnings

    While a bankruptcy does offer protection and a way to erase overwhelming debt, it can stay on a credit report for seven to 10 years. Acquiring credit after filing bankruptcy can also be a problem; lenders may require a co-signer or down payment. If you are approved for credit after bankruptcy, you'll pay a high interest rate, which increases the payment on the account. A bankruptcy can also result in higher insurance premiums and limited job opportunities in the finance industry.

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