It’s Better to Show You Avoided Bankruptcy

Many who seek bankruptcy as a way out of their debt problems are deciding on a short-sighted solution. The filing process and fees associated with a bankruptcy is money that is better spent sustaining you and your family during this difficult period. Bankruptcy sends a message to those who check your credit records such as future employers, creditors, and life insurance companies. In a way, it sends a message that you gave up on trying to resolve your debt problems. Whether it is true or not, it still sends that message to those who don’t know you but are trying to find out more. It is better to show that you struggled with your debt and learned in the long run to be a better money manager instead of throwing up your arms and quitting. Here are some more reasons why it is better to show you avoided bankruptcy:

You don’t have the “B” word on your credit record. It doesn’t matter if you file for bankruptcy or use a debt management program, time is going to pass. However after the time passes, you will still have a scarred credit record—no matter what. But the credit record with a bankruptcy mark has to retain that mark for 10 years while any other record only stays around for 7 years. The point is that debt problems leave bad marks but bankruptcy is the worst.

People get paid when you avoid bankruptcy. Although it is true that some of your creditors get paid through the Chapter 13 bankruptcy, you still have a bankruptcy indicated on your credit record. If your goal is to pay back your creditors, it is better to use a debt management company or negotiate with them yourself if you have the time and patience. When someone looks at your credit record and sees that you filed for any type of bankruptcy, they get the impression that you took the easy road to solving your debt problem. It is irrelevant that your bankruptcy experience was not easy at all. If your honest goal is to pay back the people you owe then bankruptcy is not the way to do it. In a Chapter 13 Bankruptcy, debts are prioritized and secured debts come before un-secured debts. In other words, there is a real possibility that not much will be left to pay your unsecured creditors. If you really want to pay them back then avoid bankruptcy. Debt management either through an agency or you is much better and you personally will get the satisfaction of knowing that you did everything you could to resolve the situation.

Most who file for bankruptcy end up filing once again down the road. Although because of the Bankruptcy Reform Act of 2005, you have to wait longer before filing again, the fact of the matter is you still can file again. And, when you learn that bankruptcy can buy you some time in dealing with your creditors then you run the risk of using it as a financial tool instead of something to be avoided. In other words, if you do not focus on the root cause of poor financial planning that got you in your debt problem to begin with, you are likely to fall into this situation again. Financial setbacks are a part of life and if you do not learn ways to plan for them you will find yourself in another debt/bankruptcy cycle.

But what if I am forced into involuntary bankruptcy? Some will tell you that if you don’t file for bankruptcy, you can be forced into what is known as “involuntary” bankruptcy. Many get nervous when they hear this and figure that it would be better to voluntarily file instead of being forced. Involuntary bankruptcy is rare. Creditors have to do their homework before they just go to court and petition you into voluntary bankruptcy. Usually, involuntary bankruptcy is filed by a creditor when they fear that someone else will get your assets before them. But that is the key deciding point. The creditors know that the debtor has something and want to make sure they get their share. The debtor is probably avoiding filing for bankruptcy in order to make sure one creditor gets paid before the others and an involuntary bankruptcy would force the creditors filing the petition to be considered. Involuntary bankruptcy for consumer debt is rare and you have to have significant property worth your creditors fighting over. The creditors are at risk for big fines if they file a petition for involuntary bankruptcy without all the facts or if the petition gets dismissed. It is still no reason to stop avoiding bankruptcy.