Have you ever felt like your debt is so high the only way out is filing for bankruptcy? If so, you are definitely in good company. Consumer debt has been climbing steadily for many years and having medical debt on top of that can really make your financial future look bleak.
With increasing amounts of debt and stagnant wages, it may seem impossible for you to ever recover financially without taking drastic action. And many people believe that bankruptcy will wipe out all of their debt quickly and easily, and will also give them a fresh start.
But before you commit to the decision of filing for bankruptcy, you really need to understand its ramifications clearly. Bankruptcy is not just a simple solution to start over again, and having a bankruptcy will continue to affect you and your family for years to come. There are many negative effects of bankruptcy, and it is important that you understand these before proceeding.
Effects of Bankruptcy
- You will likely be left with some debt since bankruptcy does not wipe out all types of debt. This may include student loans, alimony, child support, taxes, other government fines and penalties, and any expensive purchases you make right before filing.
- Bankruptcy will appear on your credit report for up to ten years and can drastically lower your credit score.
- Credit card companies may cancel your current cards when they are notified of your bankruptcy filing. When you need money the most, you may not be able to access it.
- It may become extremely difficult to purchase a home, vehicle, or other consumer goods on credit for at least the first two years. Even when you are able to take out a new credit card or loan, the interest rates and fees may be incredibly high and will cost you a lot over time.
- You may lose your property. It is possible that you will be forced to sell off many of your assets to pay back your creditors including your home, vehicles, and any personal possessions of value including jewelry and family heirlooms.
- Your rental applications may be turned down by landlords when they see the bankruptcy filing on your credit report.
- It may prevent you from finding employment in certain fields.
- Your insurance premiums may go up due to your credit score dropping significantly. These rates may be so cost-prohibitive that you cannot even afford the premiums.
- Tax returns may be denied due to your bankruptcy filing.
- You will be prohibited from filing for bankruptcy again for years, even if you have higher debt than before.
- Anyone you have co-signed a loan with will still be responsible for your debt.
- People you owe money to will be notified of your bankruptcy, which can be embarrassing.
- Filing bankruptcy is not free. You can expect to pay hundreds, if not thousands, of dollars in court and attorney fees.
So how can you avoid bankruptcy even when you have high debt? It is possible to take control of your finances and resolve your debt without filing for bankruptcy. Doing so will help you avoid the negative effects of bankruptcy.
- Figure out where every dollar of your money is going. Check your bank and credit card statements to see what bills and discretionary spending you currently have.
- Set a budget and stick to it. Account for items such as housing, transportation, food, and utilities.
- Cut out all unnecessary expenses. Make sure that your direct needs are met, and then eliminate any spending on ‘wants’. Use this extra cash to start paying off your debts and saving for any emergencies that might arise.
- Look critically at all of your bills and see how you can lower each of them. Call all of the companies who bill you and ask for any discounts they may offer or any services they provide that are less expensive than what you have now.
- Consider moving to a cheaper place, selling your car for an older yet dependable model, and buying Whole Foods in bulk to save money on groceries. These are your top three expenses and cutting back in these areas will save you the most amount of money.
- Find ways to make extra cash. Get a roommate, rent out your camper, or start mowing your neighbors’ lawns. There are endless ways to make quick cash and you can apply this to your debt.
- Focus on increasing your income at work. Get more training and certifications, ask for a raise, and pick up freelance work in your field.
- Clear out your storage area and sell off any items that you are no longer using.
- Look for free or cheap items online instead of buying new ones. Even better, pick up these free or cheap items, repurpose them, and resell them. If you cannot find what you need online, ask friends and family to borrow items.
- Make sure you have good insurance. Medical debt is one of the biggest factors in filing for bankruptcy. You may need to consider changing jobs to an employer with better benefits or finding a good policy on the marketplace to protect yourself from exorbitant medical bills.
Taking Control of Your Finances
Once you start applying these steps, you will be taking control of your finances and you can avoid bankruptcy even with high debt. It will take patience and commitment, but you can definitely change your entire financial picture by implementing these strategies.
It may seem overwhelming and impossible at times, but taking one small step at a time will allow you to start seeing results quickly. No matter what your income or debt level is, anyone can cut expenses and earn more cash to apply to their debt.
The most important thing to do is look at both the pros and cons, and to make a well-informed decision prior to filing for bankruptcy.
Remember, your financial picture will not be entirely fixed after bankruptcy. You may lose property, retain some of your debt, drastically lower your credit score, and you will be left with the same financial habits that drove you to bankruptcy in the first place.
High amounts of debt can be eliminated with or without bankruptcy, but you will need to educate yourself on personal finance, lowering your expenses, and changing your spending habits, or you will very likely find yourself in debt again.
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