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3 Reasons Why You Should Avoid Bankruptcy

By Erik Folgate

I listen to the Dave Ramsey Radio Show every once in a while on my way home from work, and one of the most common topics I hear from callers is the question about bankruptcy. So many people call in for advice about whether or not they should file for bankruptcy. Ramsey, having gone through a very messy bankruptcy himself 20 years ago, almost always talks people out of filing for bankruptcy. There are some cases where bankruptcy is the only option, but after listening to his show for a while now, I’ve realized that bankruptcy doesn’t need to be the first option for someone in serious financial trouble.

But bankruptcy sounds so easy, right? You hire an attorney, they file some papers, and your slate is wiped clean. Well, it’s not quite that easy, and many people take filing for bankruptcy lightly nowadays. Here are three reasons why you should try to avoid bankruptcy at all costs.

  1. You’ll be dropping a bombshell on your credit. The bankruptcy will stay on your credit report for 7 to 10 years, and you’ll be treated like an untouchable when it comes to getting a loan in the future. The only people you’ll attract are sub-prime loan sharks. The worst part is that it will take at least 3 years to be bankable again for a mortgage. You’ll need to pay for everything on time and not slip up ONCE if you want to think about buying a house after a bankruptcy.
  2. It puts an emotional strain on your relationships. You’ll be getting sued, dealing with attorneys, and going to trial hearings. It’s not a walk in the park, and if you’re married, it will definitely affect your relationship. Ramsey is very candid about the fact that his marriage was hanging on a shoestring while they were going through a bankruptcy and raising two kids. It’s not a fun and easy process. It’s not the “start over fresh” feeling that some portray it to be.
  3. It Can Be Expensive. That’s right, filing for bankruptcy isn’t for free, and if you want to do it right, you’ll need a decent attorney to handle it for you, and attorneys aren’t free! If you don’t use an attorney, you leave yourself vulnerable to possible liability for debts you can’t pay. Remember, it can be expensive to go broke!

Most people don’t need to file bankruptcy to get out of their financial mess. Most times it only requires you to get organized, take control of your life, and start systematically paying off debt. Get on a written budget, work another job, sell a bunch of stuff, and get your debts paid off. It sounds so simple, but the hard part is overcoming the person that got you into this mess…yourself. If you can overcome yourself and make wiser decisions, you can win with money and avoid bankruptcy.

Erik Folgate
Erik and his wife, Lindzee, live in Orlando, Florida with a baby boy on the way. Erik works as an account manager for a marketing company, and considers counseling friends, family and the readers of Money Crashers his personal ministry to others. Erik became passionate about personal finance and helping others make wise financial decisions after racking up over $20k in credit card and student loan debt within the first two years of college.

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Comments

  • Elizabeth I

    If you think you may need to file for bankruptcy–get a referral for a good bankruptcy lawyer. I know one who has told clients that they do not need to file for bankruptcy!

    In the event that you must file for bankruptcy, do it quickly and begin learning how to rebuild your credit after you do it.

  • http://madsaver.com Mac

    Hopefully I will never be in the situation to do so, but I too have felt that bankruptcy is taken lightly these days. The problem lies with corporations. They appear to file for bankruptcy w/o an affect on their business to most people. People see that and think how simple it would be to do the same. But after reading this, I now wonder how that affects the company’s own loans & abilities to purchase products and if it takes as heavy a toll on them as it does to invididuals.

  • DG

    definitely sounds like an emotional burden…you ruin your credit for many years to come and that could affect other aspects of your life including applying to grad schools, applying for a homeowners loan, etc

    It Can Be Expensive. – oh boy. what isn’t these days?

  • http://www.bankruptcyattorneybaltimore.com/ bankruptcy attorney Baltimore

    Bankruptcy has an irony to it, money is lost, yet it is expensive to deal with it. Good thing there are ways for people to avoid bankruptcy and they should like it and treat it like an investment. Self discipline and living within means are just a few of the methods to keep finances on track and stay away from a financial rut.

  • http://freshstartsolutions.com.au/ Fresh Start Solutions

    All the
    things you have discussed here are really so important and should be noted.
    People should not pay off debts to friends and family members; they should
    know that this will not keep them out of the bankruptcy process.

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