Understanding When Bankruptcy Might Be the Right Choice
Overwhelming debt can affect every aspect of life, prompting many to consider bankruptcy as a solution.
“Both forms of bankruptcy have significant impacts on short- and long-term financial goals,” notes Amy Robbins, Associate Director of Operations at Take Charge America, a nonprofit credit counseling and debt management agency. “Bankruptcy can severely impact your financial future for years, so it should only be considered as a last resort. There are several alternative debt relief options that might be better suited to your situation.”
Bankruptcy is a legal process designed to eliminate some or all of a person’s debt. The two most common types of consumer bankruptcy—Chapter 7 and Chapter 13—specifically address debts like credit card and medical bills. However, bankruptcy does not relieve student loans, back taxes, or child or spousal support payments.
Before opting for bankruptcy, Robbins advises considering these alternatives:
- Alternative Debt Relief Options: Various methods can offer relief without the long-term consequences of bankruptcy. Free credit counseling from nonprofit agencies can help identify the most suitable option for your situation. Debt Management Plans (DMPs) may reduce repayment time and offer benefits such as waived fees and lower interest rates. Debt consolidation could also be viable if you have good credit, and creditors may provide hardship programs for temporary difficulties.
- Car and Home Status: Bankruptcy remains on your credit report for seven to ten years, which can hinder your ability to secure loans for a home or vehicle, leading to higher interest rates and less favorable terms.
- Employment Status: Certain financial, government, and managerial roles may require a credit check. A bankruptcy can raise concerns about financial responsibility and stability, potentially affecting your job prospects.
- Attorney’s Fees: While not mandatory, hiring a lawyer for bankruptcy can improve outcomes. Evaluate whether the cost of legal fees is justifiable or if another debt relief method is more appropriate.
Take Charge America offers free and confidential credit counseling to help individuals find the best debt relief option based on their financial circumstances and goals.
About Take Charge America, Inc.
Founded in 1987, Take Charge America, Inc. is a nonprofit organization providing financial education and counseling, including credit counseling, debt management, housing counseling, and bankruptcy counseling. The agency has assisted over 2 million consumers nationwide in managing their finances and debt. For more information, visit takechargeamerica.org or call (888) 822-9193.
