Bankruptcy, is it for you? Can you avoid it?

Bankruptcy: What was once a last resort and utilized by few individuals, is now – because of this difficult economic climate in which we are living – is becoming more commonplace. Taking the steps to file bankruptcy is not something that should be taken lightly but for those businesses and individuals who don’t see light at the end of the financial tunnel, it may be a viable, if a last resort, option.

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Many questions arise during a bankruptcy discussion, such as: will filing effect my future (or current) employability? What happens once the bankruptcy is discharged? Will I be able to get credit again? Will my friends, family, colleagues find out? Even though the filing of bankruptcy paperwork is public record, unless your employer is on the notice as a creditor, there is no reason for them to find out. However, if you are applying for a new position and your potential employer requires a credit check as a condition of employment, that will show up.

Before you file bankruptcy, you should talk with a trusted accounting professional to see if there are other alternatives. There are many alternatives that might get you back on the road to recovery but they should be researched fully before you take those steps. Always do your homework as not all credit counseling services perform the functions that you believe they might.

If you’ve determined that bankruptcy is your only hope for financial recovery, take the time to shop around, and ask for referrals, before you decide which bankruptcy attorney will represent you. Remember, full disclosure is the name of the game in a bankruptcy filing – you have to include all of your debt when you are filing. You can’t keep your “favorite” credit card active, or decide on your own to continue to pay a certain credit. Each credit listed on the credit report that your attorney will request will receive a notice from the bankruptcy court advising them that you have filed bankruptcy and will come with an automatic stay warning – this tells the creditor they cannot attempt to collect on a debt from you without permission from the court. This automatic stay is issued as a protection to you – the debtor.

A bankruptcy filing will remain on your credit report for up to 10 years and because of that, creditors – scrupulous ones at any rate – will likely shy away from issuing you a credit card. Remember, though, it’s credit cards that likely got you into the financial turmoil in the first place so extreme caution should be used.

Type of bankruptcy filings:

Chapter 7 – Liquidation: The most prevalent filing and is undertaken when you don’ t have the financial means to repay your debts.

Chapter 13 – Personal reorganization: You would need to show you have the funds to pay your creditors back in order to undertake this filing

Chapter 11 – Business reorganization: Business owners file this when they need to take stock, reorganize debt and payment structure and get back on track.

Once you’ve filed for bankruptcy, it’s advisable – and sometimes required by law – to sign up for credit counseling as a way to help you stay on track with your bills now that the slate has been wiped clean. Scheduling an appointment with an accountant could be a good first start toward your financial recovery and credit-rebuilding plan.

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