Some people might think bankruptcy is an essential escape-hatch from insurmountable debt. For some people, bankruptcy might be a good solution. But bankruptcy might not help people as much as they think, according to debtconsolidation.com.
When people file for bankruptcy, a judge will go over their finances and choose what bills need to be paid, also called the means test, according to the article. Judges adhere to the guidelines established by the state. Generally, filing for bankruptcy will completely discharge unsecured debts, if the person filing qualifies for chapter 7 liquidation. Debt from medical bills, credit cards, personal loans and payday loans are usually included.
But a lot of people don't qualify for chapter 7 liquidation because they can't pass the means test, according to the article. On top of that, debt from mortgages, car loans, business equipment loans and other debts attached to it can be harder to get rid of.
Federal tax debt, student loans, alimony and back child support payments don't get removed with bankruptcy. Also, filing for bankruptcy will destroy a person's credit score as it will probably drop by at least 200 points. Potential employers, banks and insurance companies frequently get scared when they hear a person has filed for bankruptcy, according to the article.