Money Matters

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Is bankruptcy your best option?

The decision to file for bankruptcy is never easy. A last resort for people struggling financially, bankruptcy is an option for certain people who are unable to pay their outstanding debts.

The decision of whether or not to file for bankruptcy is more complicated than some people may know. Bankruptcy won't wipe your financial slate clean, and it can have a lasting impact on your credit rating that can make it difficult to get back on your financial feet down the road. So before filing for bankruptcy, it's best that men and women consider the following factors so they make the most informed decision possible.

• Eligibility: There are rules regarding eligibility to file for bankruptcy. Simply being in debt does not make a personal eligible to file for bankruptcy. Income is one of the factors that determines bankruptcy eligibility. People who have sufficient income to pay their debts often do not qualify for Chapter 7 bankruptcy, which is the type of bankruptcy wherein a trustee can cancel an individual's debts. Past history is also considered when determining eligibility, as men and women who have received a bankruptcy discharge in their recent past are typically ineligible to file again.

• Financial outlook: The impact of filing for bankruptcy is anything but temporary. Bankruptcy stays on your credit report for years, which can make it difficult to rent a new apartment or secure a bank loan for a new home or automobile. Even if you are able to secure such loans, expect the interest rate to be significantly higher if you have a bankruptcy in your recent past. So before filing for bankruptcy, consider your financial outlook for the years ahead. For example, if you are on the cusp of graduating college or landing a more lucrative job, then you may want to be patient and persevere through your current financial struggles rather than make a decision that will have a negative impact on your finances for years to come.

• Types of debt: Even if a judge discharges your debt, that does not necessarily mean you won't still have debts to pay. Bankruptcy only discharges unsecured debt, which includes credit card balances and medical bills. Secured debt, such as student loans and child support that is an arrears, must still be paid even after bankruptcy has been discharged. If secured debt is the albatross hanging over your head, then you will need to find another way aside from bankruptcy to solve your financial problems.

• Guilt: Though it may sound silly to people buried in financial debt, some men and women who file for bankruptcy are ashamed when their bankruptcy is discharged. Guilt about not paying your bills is a very really thing, so don't be quick to discount the emotional toll that filing for bankruptcy can take on you.

Filing for bankruptcy can help men and women who are struggling financially get back on the right track. But bankruptcy is not the best solution for everyone.