Bankruptcy - A Good Idea?

Recent economic times have spelt disaster for many in the West with the collapse of businesses and the resultant loss of jobs. Many people have found themselves struggling to cope with levels of debt accrued when times were good, but which are now unmanageable.

The problem with this sort of situation is that people get into a downward spiral from which they can see no escape. The stress of being unable to meet one's day-to-day spending commitments becomes unbearable, and when this is combined with the easy come easy go attitude of certain companies who specialise in bankruptcy and promise removal of all of one's debt and a financial clean start, bankruptcy appears to become a logical means of escape.

When faced with huge financial problems and stress that comes with them it can be hard to think objectively. The problem is that whilst bankruptcy appears to offer the door to financial freedom this is far from the case.

The fact that one can declare oneself bankrupt and become debt free within a few months is the carrot many companies specialising in bankruptcies will wave in front of someone in serious financial difficulty, but what they don't tell you are the consequences of going bankrupt.

These include losing your home, your car, your business if you have one and most if not all of your personal assets. Further getting any type of loan or credit card becomes virtually impossible given the destructive effects of bankruptcy on your credit rating.

It may well be that it was credit card debt that got you into trouble in the first place and you therefore may feel that you never want another credit card again. However, if used properly, credit cards can be a very valuable tool. Are you really sure you can manage without them?

Similarly with loans, are you certain you are never going to need to borrow money again either now or in the future? Sure, your credit rating can be restored, but the only way to restore your credit rating is by demonstrating that you can handle money responsibly. Borrowing and repaying debt is a good way to improve your credit rating.

The bottom line is that whilst bankruptcy may seem an excellent way to remove your debt, life after bankruptcy can be as equally stressful and difficult. Bankruptcy may even affect your employment prospects.

To everything you can to avoid bankruptcy. Sell the car, sell anything, working out a budget and pay only the absolute essentials that you need to live and cut everything else out. See if you can rearrange your payment schedules with your creditors, seek debt counselling, consult with your bank and do anything you can to get a third party involves who can look dispassionately at your financial position and perhaps work out an alternative.