Is Bankruptcy the End of the World?

Your employer downsizes and your job is gone. Your health deteriorates and you run up big medical bills. Your breadwinner spouse dies or divorces you. Your retirement nest egg disappears when the stock market drops.

For some people, these kinds of events can lead to financial disaster and, in the worst cases, possible bankruptcy. Those who seek bankruptcy generally are not spendthrifts who purchase fancy cars or cruise the Caribbean. They're not deadbeats who run up big bills, and then duck creditors.

Is bankruptcy the end of the world?

Absolutely not!

Just because you have filed for bankruptcy doesn't mean you will never be able to get back on your feet again financially. In fact the purpose of a bankruptcy loan is to help you to reestablish your life and finances.

A bankruptcy loan can give people who have filed for bankruptcy opportunities they might not have otherwise, like the ability to own homes and even automobiles.

Loans are usually offered to people who have declared bankruptcy after their cases have been dismissed and their creditors have been paid.

In the case of a Chapter 7 bankruptcy the debtor must wait 2 years after their bankruptcy was filed to apply for a loan. After the case has been dismissed they can apply. In the case of a Chapter 13 bankruptcy a creditor must be paid in full before the debtor applies for a large loan.

The best way to get a loan after bankruptcy is to prove to your lenders that you are no longer a high-risk borrower. The most effective way to do this is to reestablish your credit by paying all bills on time and properly maintaining a credit card. Once you have done this you can request reference letters from your credit company and the companies that you pay for utilities to prove to other lenders that you are financially responsible.

Not all bankruptcy loans are given after debtors have washed their hands of bankruptcy. Sometimes loans are offered to people in debt as a payment alternative they can use to reimburse their creditors, but this is usually a recipe for disaster. The last thing a bankrupt individual or company needs is another creditor on their case while they still have debts to pay off.

Although a bankruptcy can remain on your credit report for 10 years, it only takes 10 minutes after your debts have been discharged to begin to start receiving credit card offers again. You are now a target of the credit card issuers marketing campaign because their banking on that you have learned your lesson from past mistakes and will pay your bills on time. Not to mention the fact that you can't file for bankruptcy protection again for several years.

The one thing you can count on is that you will be approved for credit again. You will be offered what are called sub-prime cards that offer high interest/high fee cards or the opportunity to shop for high priced merchandise out of a company catalog.

But you learned your lesson the first time around right? Or have you?

If you are considering a sub-prime credit card or credit through catalog houses you better give some more thought to this decision. You are on the same slippery slope that got you in trouble in the first place.

Perhaps bankruptcy wasn't a good idea in the first place.

There is no easy way to get out of debt. The Bankruptcy Abuse Prevention and Consumer Protection Act, passed just over a year ago is heavily supported and was lobbied for by credit card companies, banks, and other lenders, makes it more difficult to discharge debts, requires credit counseling and education for persons filing for bankruptcy, and raises the cost and complexity of a bankruptcy case.

If you are in a financial situation in which you are wondering if bankruptcy is your only way out, investigate all of your options. Bankruptcy, because of it's detrimental effect on your life, should only be considered as a last option. If you've just had a personal crisis that has changed your financial situation dramatically, assess what next steps are best for you. If you are living paycheck to paycheck just to keep up with creditors, look for ways in which you can get off the debt treadmill. Getting credit cards and debt paid off not only saves money in fees and interest costs, it also creates a safety net should an unexpected event occur. While no one can fully prepare for the most catastrophic of life events, everyone can try to prepare for a more secure financial future. They can do this by learning from past mistakes.

There is no magic solution for getting out of debt. Don't believe anyone who tells you otherwise.

This article is meant to provide general financial information; it is not meant to substitute for, or to be a replacement for legal advice.