It seems like a gift sent from heaven, a panacea for all of your financial headaches when you find yourself overburdened with debt. Just file bankruptcy (Chapter 7) and voilà! All of your debts will be forgiven and erased; all those nasty debt collectors will have to stop those harassing phone calls that have been making your life miserable. What a relief.

But if you’ve been considering that course of action, you should be aware that bankruptcy is far from a panacea. Quite the contrary, the truth is that it’s accompanied by some substantial drawbacks.

— First of all, the filing will appear on your credit report for as much as ten years. That means every time you apply for credit, you’ll probably have to go through the same tedious routine of explaining the reasons that prompted the bankruptcy. And even then, your potential creditor may not be convinced. Obtaining credit in these harsh economic times can be a major challenge even for someone with a spotless credit record.

— Once you’ve filed for bankruptcy, you’re going to lose all of your property except what the law exempts. That isn’t going to make for happy days.

2005 Act Changed Everything

Despite these rather harsh penalties, many debtors used to find that, on balance, bankruptcy really did seem like a pretty good deal—until quite recently. Then, in October 2005, Congress enacted the Bankruptcy Abuse Prevention and Consumer Protection Act, and suddenly the party was over.

The act requires that a debtor enter into consultations with an approved consumer credit counseling service—the idea being that people must pay their debts if at all possible, rather than resort to bankruptcy as a first course of action. If a debtor is still determined to file, he or she must first get certification from that credit counseling agency.

“But wait, there’s more!” as those late-night TV commercials like to tell us at ear-splitting volume. Provisions of the 2005 act also include the following:

— More documentation from the debtor is required before a filing will be accepted.

— Subsequent filings are actively discouraged.

— The waiting period between Chapter 7 bankruptcy filings has been extended from six to eight years.

— Final discharge of the obligation is withheld until the debtor completes a course in personal financial management.

Magic bullets just don’t exist. When you add up all the negatives, you can readily see that filing for bankruptcy is a long, arduous process littered with roadblocks at every turn. That’s why entering into a debt settlement program is a better choice for many, letting experienced debt negotiation specialists settle with their creditors for less than they owe. It’s certainly a viable alternative for peace of mind and a fresh start.

Related Posts:

1. The Cost of Bankruptcy to You
2. 4 Biggest Drawbacks to Bankruptcy
3. What is Bankruptcy?
4. Avoiding Bankruptcy: The 5 Secrets to Success
5. How to Avoid Angry Creditors