Author: Alan Brady
Published: Aug 16 2012
It's not completely unbelievable that a relatively responsible person might just be unlucky enough to fall on hard times harsh enough to force them into bankruptcy through no real fault of their own. However that person is probably not you. Many people are backed into a corner financially at some point in their life and left with no options but to file for bankruptcy. Bankruptcy is a pretty horrible fate for anyone, and it's ranked as one of the most traumatic events that a person can go through right after divorce. People who haven't actually gone through it often tend to see it more as an easy way out, a way to wipe the slate clean and get on with their lives. A much more accurate image would be one of an animal chewing its own leg off to get out of a trap, it might be free, but its permanently maimed as a result.
One strange attitude that I hear about nowadays is the idea that you can live large for a while, rack up debt, and then simply declare bankruptcy and move on as if nothing had happened. What is often overlooked is the fact that many places require even people who file for chapter 7 (where your assets are sold off and debt is canceled) to continue paying off their debts out of any surplus income for up to 3 years after bankruptcy is declared.
Most loan applications don't ask if you've declared bankruptcy in the last 5 years; they ask if you've EVER done so. It doesn't matter if it was 30 years ago, if you say no you're committing fraud. You will probably never qualify for another car or home loan, even if you could afford a down payment, which is improbable if you were already forced to drown in your debt once.
Don't declare bankruptcy if you didn't read the fine print. If you took out $100,000 in student loans and can't get a job with your doctorate you'll find that you're out of luck. Declaring bankruptcy will do nothing except cause further hardship. In order to cancel your debt you would have to prove hardship severe enough to render you incapable of working. Similarly the government might be happy to forgive your debts to other people, but it has no such warm fuzzy feelings when it comes to the money you owe Uncle Sam.
At the end of the day you can blame the economy, your job, or the government, but the real cause of your financial collapse is you. Getting into enough debt to force bankruptcy once is indicative of a poor understanding of how personal finance works. Often people with exceptionally poor credit find themselves driven toward even more risky high-interest loans that will break them even faster. Instead of trying to maintain an image learn how to budget your money and lower your standard of living to match your income.
Take a personal finance course to help you fix your core problems before you even think about taking out a loan of any size. Alan Brady is a real estate and financial enthusiast who loves to blog about personal finance, renting, home ownership and responsible practices for mortgage lawyers.
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