If your financial situation has become so extreme you're considering bankruptcy, you're probably already aware that doing bankrupt will erase your debts, but also destroy your credit for 7 years.
7 Years Is A Long Time To Be A Financial Pariah...
While it's true that some of the great entrepreneurs such as Henry Ford and P.T. Barnum went broke, laws since then have changed. In fact celebrity bankruptcy cases like Burt Reynolds's in 2001 exploited legal loopholes since closed through additional legislation. Reynolds got to keep a 2.5 million dollar house while welching on $8 million in debt.
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The average situation is more modest. You probably don't have the resources to hire the same caliber of lawyer either. Chances are you'll get to keep your home under the homestead acts, which vary from state to state.
Anti-Abuse Laws And Your Debt Situation
The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 imposed limits on gaming the Homestead acts and made it much tougher to welch on debts entirely. As a general rule, the maximum debt you have against your home you can write-off is now $125,000 - so bankruptcy can get you out of a pickle, but it may not get you home free.
How Long Will My Credit Be Ruined?
You'll be in the doghouse for about seven years. After that your bankruptcy disappears from your credit record. If you try to establish credit during that time - which you probably should - you'll pay sky-high interest rates as a penalty for your past decision to escape debts through chapter 7.
The Bankruptcy Alternative
If you don't want to pay the heavy price of ruining your credit by going through chapter 7, the next logical option is debt consolidation. Working with a debt consolidation company can help you bring your monthly debt payments down to a manageable figure. They'll also help you find ways to save money you're wasting now and develop a calendar for getting out of debt for good.
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