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One of the downfalls of our society is instant gratification. We love food that is ready in the microwave in 2 minutes, we drive thru Starbucks to get our coffee in the morning and we subscribe to Netflix to watch what we want, when we want. When things get a little rough for us, we want out, quickly. It’s an unfortunate fact that society has come to accept bankruptcy as a natural stage of life for most of us. Commercials tote the ease in which people can file for bankruptcy and be rid of all their debts. It’s expected for people to rake up mountains of debt, and if you get in over your head, declare bankruptcy!

There are cases where it makes sense to declare bankruptcy, such as when you are chased by creditors for a debt you can’t afford to pay. It is worth noting as well that if you don’t recognize the debt collector’s company it doesn’t necessarily mean it is a scam. The creditor could have sold your unpaid account to a debt collector agency, such as Jefferson Capital Systems. You can read more about this collector on the Jefferson Capital Systems reviews here. Filing for bankruptcy could help you cancel unmanageable debts. However, this isn’t always the best approach, as we will explain here.

As easy and smart to do as it sounds, bankruptcy will dramatically alter your life and in the process probably put you through some pretty rough times. Think about it for a second. When you get a loan for something, you are promising to the lender that you’ll pay them back. If for whatever reason you can’t pay it back, that lender is out of luck. Lenders will not be happy with you not being able to pay them back, and will do almost whatever it takes to get you to pay them back. Let’s separate fact from fiction and have some real talk about bankruptcy.  There are two main types or “chapters” of bankruptcy that people typically go through: Chapter 7 and Chapter 13.

Chapter 7 Bankruptcy:  Oh my gosh it’s a FIRE…sale!

When things really get out of control with your debt and the payments and interest keep swelling to the point where you are no longer able to pay them off, it’s time for drastic measures. Chapter 7 bankruptcy is effectively when an appointed trustee comes into your life and starts selling or “liquidating” all your possessions (aside from your core ‘life necessities’) and using that money to pay off your creditors. Once this takes place, your loans are then deemed as discharged or finalized and you don’t owe that money anymore.

Chapter 13 Bankruptcy: Let’s take a time out.

Unlike Chapter 7 bankruptcy, Chapter 13 doesn’t necessarily eliminate your debt; it’s more like a time-out between you and your creditors. When you’re pretty far into debt, your creditors will do whatever they can to try to get you to pay. We’ve all heard horror stories of abusive creditors, calling all the time, or showing up to visit. In Ch 13, you’ll typically meet with a judge in a federal bankruptcy court and hammer out a 3-5 year plan to get your debts back under control. Your disposable income (total income minus general living expenses) will be taken into consideration and will be used to formulate a plan to put a dent in your debt. Interest will be slowed down and you’ll avoid harassment from your creditors. Your creditors will be a little peeved because you’ll pay less interest, but at least there will be a plan in place for them to get their money back.

The downsides of bankruptcy.

Going into bankruptcy is not an easy process. Often you’ll have to go to a federal court and plead your case. A judge will go over all your belongings and assets with you, and will determine whether or not you are eligible to declare bankruptcy. Definitely not how I want to spend my days, stuck somewhere in court pleading with a judge that I don’t have the means to pay off my own debts. It can be a long and drawn out process, as creditors aren’t exactly of fan of you getting out paying debt.

Also, not all debt can technically be discharged via bankruptcy. Notable exceptions to loans or obligations you can’t get out of are: child support, spousal support, income tax (within 3 years), property tax and student loans. Yes, that’s right; all that debt you racked up in college getting an education is often not eligible for bankruptcy. Getting rid of your student loans requires a whole different appeals process, where you prove that your loans are causing you ‘undue hardship’.

Finally, if in fact you are declared bankrupt, either Ch 7 or 13, your bankruptcy will follow you on your credit report for 10 years. Good luck renting an apartment, trying to buy a car or even getting a job. You’ll have a lot of explaining to do when it inevitably comes up.

Bankruptcy is not something that average people should do. It’s a long, drawn out process that can wreck people’s lives. I’m tired of seeing bankruptcy as something that “good people do when they fall on hard times” or “is common for people just like you to do”. Bankruptcy attorneys are in it to make money, not necessarily help “good people like you”. Try everything you can do to never be in danger of declaring bankruptcy. Only take modest loans that you know you can pay off and always have a good emergency fund stocked away for the rainy days. You’re better than bankruptcy! Choose to live your life differently!

Thanks for reading! Here’s another one (or two!) you might enjoy:

How to paying off student loans

The important of an emergency fund

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