The Last Resort: Bankruptcy

If there is absolutely no other way to handle your debt, consider bankruptcy, but it is not the panacea it is so often thought to be.

Any good section about abolishing debt needs to mention bankruptcy. If there is absolutely no other way to handle your debt, consider bankruptcy, but it is not the panacea it is so often thought to be. For families that have suffered a job loss or illness, however, bankruptcy may be their only option to get out of the abyss of debt.

More than 1.3 million Americans filed for bankruptcy last year, which can be filed under Chapter 7 or Chapter 13. Chapter 7 bankruptcy requires that most of your possessions be sold and that your creditors be satisfied. Chapter 13 sets up a court-approved repayment plan and allows you to keep your assets. Both the CCCS and DCA are able to help you assess your situation to see which course of action would be best. Beware, however, because new bankruptcy laws pending in Congress may make it tougher to walk away from credit card debt.

Bankruptcy stays on your credit history for up to 10 years and can make everything from renting an apartment to buying life insurance more difficult because you have a bankruptcy listed on your credit history. Furthermore, there are some responsibilities in your financial life that you can't wiggle out of. Bankruptcy will not wipe out your obligation to pay child support, alimony, income taxes, or the replacement of your student loans. These payments will continue after filling for bankruptcy.

Getting another credit card after filling for bankruptcy will probably be easy because credit card companies know you can't file for bankruptcy again for six years. These companies know that your debt has just been wiped away, so your cash flow will have increased. Don't go there! If you get a clean slate, keep it that way.