Our Bankruptcy Attorney Blog

Although it is not always the case in other countries, in the United States, filing for bankruptcy is usually considered a measure of last resort and carries a significant social stigma with it. Essentially, filing for bankruptcy is a public admission of your inability to meet your responsibilities and carries the implication of utter failure. Nevertheless, the bankruptcy option is not really meant to operate this way and there are certainly times when bankruptcy makes good sense and is a better option than the alternatives available.

Perhaps the worst aspect of bankruptcy is the fact that it shows up on your credit report and stays there for at least ten years. Further, even if significant portions of your debts are discharged by the court, this does not necessarily mean they will be removed from your credit report. Instead, you have to manually have the discharged debts removed. There have been many cases of people who did file for bankruptcy and had a lot of their debt discharged, but never bothers to contact the credit bureaus about it. The result was that not only did all of the old debt remain on their credit report, but so too did the bankruptcy, resulting in an even worse credit rating than they had previously.

Another significant problem with filing for bankruptcy today is that it does not discharge as much debt as it used to and many debts are simply exempted from the process altogether. If your primary debts are student loans or tax liabilities, these are not likely to be discharged at all. Even the primary target debts for many filers – revolving credit accounts – are not always immediately discharged if the court determines there is a reasonable possibility of the debtor paying back the debt over a set period of time. The types of debt and your basic economic situation plays a big role on what the court will agree to discharge and what it will not. The old days of having almost everything swiped clear with the pounding of a gavel are pretty much long over.

One of the key changes to bankruptcy law that was implemented in the early 2000s was the requirement that anyone wanting to file for bankruptcy has to receive credit counseling from an approved credit counseling service. The basic idea here was to deny the bankruptcy option to people that had better alternatives available. These approved credit counseling agencies are generally non-profits and are familiar with all of the potential alternatives to bankruptcy. Therefore this process somewhat culls the ranks of those considering bankruptcy and provides tangible alternatives where they are possible. In fact, some of these credit counseling agencies will deny you the certificate of compliance that you require in order to even make the initial filing for bankruptcy if they feel you have viable alternative options available.

Bankruptcy is never a great idea and most people that can avoid it do so. The result is that those people that do file for bankruptcy and get some or all of their debt discharged are deemed the worst of the worst borrowers and are even seen as dishonest by many people. If you can avoid bankruptcy, it is usually in your best interest to do so and the credit counselors will give you a good idea of what alternatives may be available to you.

Tags: avoid bankruptcy

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