About A Wealth of Knowledge
Financial expert Michelle Singletary answers questions about personal finance and the economy.
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Cost of Bankruptcy
Q: Is bankruptcy really a disaster?
@KBCarpenter via Twitter
A: Merriam-Webster.com defines a disaster as a sudden calamitous event bringing great damage, loss or destruction or a sudden or great misfortune or failure.
So, yes, by definition, bankruptcy is a disaster. It's tough on your financial life. Once you file bankruptcy, it stays on your credit report for 10 long years. That's not to say you won't be able to qualify for credit, but it will cost you--big time. You may also find it difficult to get certain jobs, because an increasing number of employers are pulling people's credit reports, especially if you are going to be responsible for handling money. As the years drop away, a bankruptcy has less impact on your credit scores.
Before you even think about filing for bankruptcy, get some consumer counseling. In fact, you can't file for bankruptcy without receiving a minimum amount of counseling and a certificate to prove you completed the training. Only credit counseling organizations that have been approved by the U.S. Trustee Program may issue certificates.
A pre-bankruptcy counseling session with an approved credit counseling organization should include an evaluation of your personal financial situation, a discussion of alternatives to bankruptcy and a personal budget plan, according to the Federal Trade Commission. A typical counseling session should last about 60 to 90 minutes, and can take place in person, on the phone or online. The counseling organization is required to provide the counseling free of charge for people who cannot afford to pay. If you do pay, the pre-bankruptcy counseling should be about $50.
To find an approved credit counseling agency, by state and judicial district, visit the Department of Justice U.S. Trustee Program List of Credit Counseling Agencies Website page. Make sure you receive services only from approved providers for your judicial district.
In the end, if you do file for bankruptcy, just know you can recover from this disaster. It doesn't mean the end of your financial life.