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Debt Handling - Bankruptcy: What You Should Think About Before You File

Many people believe that bankruptcy is a simple way to get rid of the debt that's taken over their lives, so they go for it right away. However, while bankruptcy may relieve your debt burden, it's the last thing you should choose, since it's far from an easy fix.

The law has recent made it a lot easier to file for bankruptcy, but that doesn't mean the process is painless. After all, it's just like any other legal proceeding. You'll need to justify why you filed, show a judge your whole financial history, and open it to objections from your creditors.

If you really owe the money they say you do, they're probably not going to be happy about taking ten cents or less for each dollar they should be getting.

Even if you succeed, there are a number of things that bankruptcy can do to your life, and you'll want to think hard about them before you do something this drastic.

Any credit cards with currently outstanding balances will disappear, and the others may decide to close your accounts. It'll be nearly impossible to get a car loan, home loan, or other large line of credit, except at interest rates that could be ruinous. That could put you in even worse shape.

Plus, not all debts will be covered if you file bankruptcy. Have back taxes from the past three years, student loans, or other similar debts? They're not going to go away if you file for bankruptcy.

This situation will continue for the next decade. You'll have to keep a nearly pristine credit record for the duration, assuming you ever want to buy anything on credit again. A bankruptcy is far worse than a low score, as far as creditors are concerned.

Beyond that, you'll also possibly have to get rid of things you own, depending on when you bought them. While your car and primary residence are usually protected, costly jewelry, secondary residences and cars, boats, and other things considered unnecessary could be forfeited.

Remember that filing isn't free, either. The courts and the attorney are going to have some basic fees that could result in you having even more trouble.

Of course, the benefits of bankruptcy include the inability to garnish your wages, an end to foreclosure actions, and relief from any debt collection efforts once the collection agencies have been notified. Taking action sooner rather than waiting will allow you to prevent more problems and build up a new and better credit history.

The lack of access to credit cards is a real advantage, since they can be your downfall. Easy credit can be a real problem if you haven't learned good money management techniques.

Bankruptcy could serve as the wake up call that causes you to develop good habits, since for some of us, we have to hit the bottom before we can climb. However, it's a painful process that you should think about very carefully before you decide to dive in. Think hard before filing for bankruptcy.