Declaring bankruptcy can be a good safety net when debts get out of control, but here are a few things to consider before doing so:
-Some people are too poor to declare bankruptcy: Chapter 7 or Chapter 13 bankruptcy basically means that a person doesn’t have enough money to pay their bills. The process of declaring bankruptcy can be too expensive for some people to afford. The National Bureau of Economic Research says the most common form of bankruptcy costs $1500 to file. This includes the cost of paper work, court fees, and getting a lawyer. Court fees can be waived if a person earns 150% or less of the federal poverty level.
-Declaring bankruptcy will affect your credit score: Chapter 13 bankruptcy can remain on your credit report for 7 years and Chapter 13 bankruptcy will remain on your report for 10 years. This can result in a severe decrease in your credit score. You may have to wait 1-4 years before getting a mortgage and will probably pay higher interest rates when approved. A secure credit card is a helpful tool for credit repair post bankruptcy.
-Not all outstanding debt is wiped: Certain debts are non-dischargeable, such as spousal or child support, or alimony. Student loans are also non-dischargeable.