by Charlotte Wood
(last updated February 21, 2009)
Bankruptcy is one of those scary words that carries significant weight. From that one word emerges feelings of panic and connotations of failure. Bankruptcy is usually the last-resort option, the one you choose only if you've exhausted every other possibility. While declaring bankruptcy does clear all your debts, that doesn't mean you get to start with a clean and fresh credit slate. Bankruptcy will taint your credit report for ten years and that could have severe consequences in and of itself. Before filing your bankruptcy paperwork, carefully weigh the consequences and proceed wisely from there.
Chances are, when you do file bankruptcy, you've already defaulted on your other financial obligations and your credit probably isn't in the best shape anyway, so really the bankruptcy mark is just icing on the cake. Declaring bankruptcy can give you the chance to start over numbers wise, but the numbers on your credit report will remain the same and will still have a huge impact on your financial future. Once you officially declare bankruptcy, it will stay on your credit report for ten years, so while your debts may all be cleared, your credit is not.
You won't have to worry about old bills once bankruptcy is on your fiscal rap sheet, but the bankruptcy claim will say it all. If you just look at the numbers in your bank account, you could be in a better position to pay any remaining bills or debts (such as your home loan or car insurance). Any loan or credit application however, if accepted, will carry high interest and could put another significant strain on your finances. You'll need to be cautious and tread carefully when taking on new debt, whether that be a mortgage, equity loan, or credit card; you don't want to dig yourself into another pit. You should use bankruptcy to help you get back on your feet, not lead you into another set of financial straits.
While bankruptcy won't stay with you your whole life, you do need to be aware that it will stay for you for ten years and that can significantly impact your financial situation and will play a role in determining what you can do with your money for a while. Don't be reckless and spend your money unwisely after bankruptcy; take this opportunity to rebuild your credit and ultimately rebuild your fiscal life. Bankruptcy will follow you but it doesn't have to haunt you.
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