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Should You File Bankruptcy?

What if your credit is so bad that you have year or more of negative credit history? If you find yourself in this situation, you may have to take more serious steps. If you are unable to make your credit payment, you may want to consider bankruptcy. A rule of thumb is: If your debt if more than twice your annual gross take-home pay, you probably will not be able to dig out of the hole (unless you get a second job). This is when you might consider bankruptcy.

If you have a year or more of bad credit, a bankruptcy will not make your credit history or score that much worse. Lenders are already looking at seven years of your credit history, and bad credit will make an impact even without a bankruptcy. By declaring bankruptcy, it could help lighten your debt load and give you a chance to start over with a cleared-off credit report. (Remember, though, that some things cannot be wiped out by bankruptcy, such as child support payments or student loans.)

Also contrary to popular belief, having a discharged bankruptcy on your credit report can lead to creditors offering you new credit (at higher rates). They know you don't have any other debt once your bankruptcy is discharged. As a result, your debt ratio, or the ratio of debt to income, is reduced when your debt is wiped out. You can find yourself approved for credit cards, secured loans such as a car loan, and even some other personal loan products in as little as a year or two.

Filing a bankruptcy can be expensive however. Most bankruptcy lawyers will provide a free consultation up to an hour or so for the first meeting. You can see for yourself whether bankruptcy is the right course of action for you to take. But attorney fees for filing bankruptcy can cost $2,000 and up depending on your particular situation.

Bankruptcy as an option is a very good choice for people who are not earning enough to pay all of their debt. You may discharge debt or sometimes enter a repayment plan that is court-ordered, depending on your circumstances. Either way, you have options that the credit counselors won't tell you about, even though using their services can be just as detrimental to your credit.