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There’s a stigma against bankruptcy and for good reason. It devastates your credit and cripples your borrowing abilty. Even though bankruptcy will fall off your credit report after 7- 10 years, most loan applications ask if you’ve ever filed. If you say “no,” when the truth is “yes,” you’re guilty of fraud and can be prosecuted.

It’s always better to pay off your debts rather than file bankruptcy. A bankruptcy filing could have an impact on your emotional life, too. People who’ve filed bankruptcy report feelings of regret and failure years after filing. As you consider bankruptcy, here are some things to think about.

Have you tried negotiating with your creditors?

Creditors would rather settle a debt with you than have it discharged in bankruptcy. It may be easier to negotiate a settlement if you’re already a few months late on the payment. If you’re current, creditors don’t see any reason to lower your debt. That’s not to say you should purposely fall behind on your payments, just so you can get a settlement, but that if you’re already behind it gives you a bargaining chip.

Have you sought credit counseling?

Often where you’re unsuccessful in negotiating with your creditors, a consumer credit counselor can get results. Credit counselors can often get lower interest rates and monthly payments. They don’t have any special powers, they sometimes know the right thing to say. Under the new bankruptcy law, you’ll have to get credit counseling at six months before you can file bankruptcy, so you may as well explore it as a bankruptcy alternative.

Are your wages being garnished?

If your creditors and lenders have already gotten judgments against you and have garnished your wages, filing bankruptcy could stop the wage garnishment and may be able to help you get some of the garnished money back, according to the American Banking Institute.

Do you have medical bills that aren't covered by insurance?

There’s a reason that medical bills is one of the leading causes of bankruptcy. It’s because people simply can’t afford to pay those bills, even if they have health insurance. Bankruptcy can provide relief for your medical bills by discharging them completely, or coming up with a 3- or 5-year repayment plan.

Do you have assets?

If you do not own assets or the assets you own are worth less than the debt you owe, you might consider filing bankruptcy. Also, if you have assets that are secured with a loan, you could file bankruptcy to keep from losing these assets, e.g. a house or a car.

Do you have access to savings?

Filing bankruptcy may be an option if you don’t have any savings to pay back your debt.

Have you been sued?

If you've received a lawsuit summons, you should contact an attorney. Don't ignore the summons or else the plaintiff (the person suing you) could obtain a default judgment against you and could even get permission to garnish your wages or seize one of your assets. Filing bankruptcy could prevent any judgments from being obtained against you.

Contact an attorney

Every situation is unique. The information provided here is for informational purposes only and is not legal advice. If you are seriously considering bankruptcy, contact a consumer law attorney to talk about your bankruptcy options. An attorney can review the facts of your situation and help you decide if filing bankruptcy is the right option for you.

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