Considering Bankruptcy?

With the current financial crisis affecting so many Americans, more and more people are finding themselves in a position where they need to file bankruptcy. In September 2008, 96,000 Americans sought protection under bankruptcy laws, bringing US personal bankruptcies to a minimum of 1,065,000 filings for this year. At the current rate, total filings will be 30% higher than in 2007 and 80% above 2006 figures. The biggest increases in daily average filings are coming from California, at a 76% increase in filings over 2007, followed by Arizona, Nevada and Florida, states hard-hit by falling home prices and rising foreclosures.

Filing bankruptcy is serious business. It is a legal procedure, and will remain on your credit report for at least 7 and sometimes 10 years from the date you file. You can expect to see a sharp drop in your FICO score, sometimes by as much as 100 points, especially if your credit standing was good or excellent before your current financial difficulties. Clearly, this will make it much harder and more expensive for you to obtain credit. However, if your situation warrants it, bankruptcy can give you relief from collectors and bills that you are unable to pay, and the chance to start fresh, to some extent.

If you feel that you may need to file bankruptcy, there are several things that you should do.
Do your homework – Find out about bankruptcy, such as the different types of bankruptcy (Chapter 7 or 13) and its impact on your future finances. Gather the information you need to decide what would be best for you, given your ability to repay your debts, the kind of debts you have, and your long term goals.

Consult with a bankruptcy attorney or a reputable debt counselling organization – Before filing, talk to the experts. Find out if there is any viable alternative to bankruptcy such as credit counselling, where a non-profit organization will help you to organize and consolidate your payments, often lowering or eliminating interest to lower your total payments. Be careful that you choose one that has credentials and history because there are a number of unscrupulous firms out there. If it looks like your best choice might be bankruptcy, schedule an appointment with a bankruptcy attorney and get all the facts.

Make sure your creditors are accurately reporting the bankruptcy filing – After you file bankruptcy, get a copy of your credit reports and check to make sure that only the debts that were included in the bankruptcy filing are reported as being discharged through bankruptcy. Also, look at the accounts that are included in the bankruptcy and make sure they all show a balance of zero.

Note the date that your bankruptcy was filed – The credit bureaus have specific rules about how long a bankruptcy can remain on your credit report. Generally, Chapter 7 and 11 bankruptcies stay on for 10 years and completed Chapter 13 bankruptcies remain on the reports for 7 years from the date of filing, not the date of discharge. If the bankruptcy remains on your report past this time, you need to dispute it with the credit bureaus.

After the bankruptcy, you should start re-establishing credit as soon as possible. If there are any tradelines (credit cards, lines of credit, car loans, etc.) that you have retained from before the bankruptcy, make sure you keep paying them on time. You may want to get a secured credit card, or rebuild your credit slowly with unsecured cards in small amounts, steadily increasing your credit line by establishing and maintaining an excellent payment history.