Bankruptcy

Have you ever wished someone would just wave a magic wand and all your debt would disappear?

Lottery winnings and an unexpected inheritance aside, bankruptcy seems to be the most likely way to get that wish granted. Having lost its stigma long ago, many people now view bankruptcy as a financial management tool.

But it isn’t, and they often find out too late that filing bankruptcy doesn’t solve the problem. In fact, it creates new problems while enabling them to maintain the same habits that got them there in the first place.

There is a time and place for bankruptcy, of course, but it’s never a happy option. Unless a medical crisis or something similar depleted your assets and tossed you into a black hole of debt, bankruptcy is usually the result of borrowing more than can realistically be repaid, buying more than an income can support, and/or not being on top of bills. Is filing for bankruptcy going to change that? Of course not. The purpose is to give you a fresh start. But that fresh start only makes sense if circumstances beyond your control brought you to the point of considering bankruptcy in the first place.

After a bankruptcy, it’ll be difficult to borrow money. If you are approved for a loan, the interest rate will be a lot higher. That’s because creditors look to see if you’re willing and able to repay the loan and a bankruptcy doesn’t bode well for either. If you’re looking to start a business, buy a home, or even just apply for a vacation loan, it’ll be difficult and expensive. If not impossible.

A better option? Call your creditors. Explain the situation. Tell them that bankruptcy is NOT what you want to do and ask what they can do to help. They don’t want you to file bankruptcy any more than you do, so getting together with them and working on the same side of the table is a win-win for everyone.