Declaring Bankruptcy

• If you declare bankruptcy, you are choosing to let the government help you pay off your debts by limiting your creditors' rights to demand payment from you. Declaring bankruptcy allows you to reorganize your financial life and your expenses so that you can start over again. Declaring bankruptcy also means that you have some negative consequences that you will need to manage. If the negative impacts of declaring bankruptcy are fewer than the positive impacts that come with reorganizing or dismissing your debt, you can declare bankruptcy without fearing the outcome.
  
  

Positive Impacts

• Declaring bankruptcy means that you are not able to deal with your debts. Depending on the type of bankruptcy for which you file, the court eliminates most of your debts as well as your responsibility for paying them. However, debts such as student loans, alimony and child support are non-dischargeable in any type of bankruptcy filing. A Chapter 7 filing is known as debt liquidation. After you receive a discharge, you are not liable for your debts, and creditors cannot start collection actions. A Chapter 13 filing is known as debt repayment, as it allows you to actually repay most of your debts to creditors at lower interest rates. Lower interest rates allow you to make payments that you were not able to make before. After the discharge, you do not need to worry about any creditors demanding payment of discharged debts.
  
  

Negative Impacts of Chapter 7

• Although the positive impact of a bankruptcy filing solves your debt problems, if you declare bankruptcy, you must know that you will need to deal with the negative consequences of it. Any bankruptcy filing affects your credit score for seven to 10 years. This affects your eligibility to receive new loans and credit lines. In a Chapter 7 filing, you lose most of your property and assets that are not protected by federal or state laws. Another negative impact is that any cosigners you may have for your debts do not enjoy the same protection as you do, and creditors can start collection actions against them.
  
  

Negative Impacts Chapter 13

• In a Chapter 13 bankruptcy filing, if you are not able to make all payments, you are still liable for your debts after your case is closed and interest rates go up again. The court requires you to use all of your disposable income to make payments to your creditors while you are in the Chapter 13 process. Disposable income is the income you have left after you make all necessary living expenses costs. A negative impact of this, but of a short-term effect, is that, while you are making payments, it causes you to live within a tight budget: what you earn pays for your basic needs and everything else goes to your creditors. So, before declaring bankruptcy, always consider other alternatives that might have fewer negative impacts.