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It crosses many peoples minds when stuck deep in debt, at one time or another have considered the option of going bankrupt. In this brief article I am going to give you three very solid reasons as to why you should steer clear from a bankruptcy proceeding at all costs, if possible. The majority of people in debt do not realize the very negative shock a bankruptcy can have.

1. A bankruptcy proceeding has an very negative effect on your FICO credit score and becomes a permanent public record!

Bankruptcy is one of the nastiest negative remarks that you could have put on your credit report. Thus making any more credit you attempt to get extremely hard, and if you do receive credit it usually comes accompanied with a very elevated interest rate. Plus, it will reside on your credit report for up to 7-10 years. Even once it is removed from your credit report it remains a public record for the remainder of your existence. So when you apply for new credit at any point in the future, if they ask whether you have ever gone through a bankruptcy proceeding to avoid breaking the law you must answer yes.

2. Brand New Bankruptcy laws in 2005!

In 2005, Congress approved a piece of legislation which forces anybody filing for a Chapter 7 bankruptcy proceeding, which will wipe the table clean of all your debts much harder. Basically if you have an money and a home than most assuredly you will go through a review to resolve if you should go through consumer credit counseling first for at the minimum 6 months. According to NFCC close to 80% of people in debt who apply can not follow the very regimented rules set from the creditors to complete the program thus throwing them back into the bankruptcy court. That's when Chapter 13 comes into the situation which is a form of personal bankruptcy in which the court system will decide how much you will pay back each collector you list based on your budget.

3. Court Controlled Income with Chapter 13!

Prior to the new law being approved in 2005 many people that would be able to file for Chapter 7, were now made to go Chapter 13 in it's place. Chapter 13 requires that you review with the judge and disclose all of your financial information. You must show all sources of income and assets. The court will review your monthly expenses compared to your income and then come to a determination on how much money you will have to deal out each month. You have pretty much no say in this process. If you have liquid assets such as a house they can make you sell them off, within State law, to pay off your debt. There are scheduled hearings every year and if your financial situation changes you must report this to the judge, this could bump up the amount you pay back. If you have multiple family cars you might have to sell one to help pay off your debts. They basically tell you what you can do with your money. If you have the premium cable you will be forced to cut down to normal cable, if you eat high priced steaks every night you will need to cut back to hamburgers. This can be a very painful and embarrassing proceeding.

These are all seriously unattractive proceedings that debtors should be made conscious of before speaking with a bankruptcy attorney. The majority of lawyers will down play these bad aspects of claiming bankruptcy. Bankruptcy is available for a reason and for some debtors they have no other option available to them and must file for a bankruptcy proceeding, however many debtors go bankrupt when it could have been avoided. A very nice substitute option to bankruptcy is credit card debt settlement. With debt settlement in most cases you will save tremendously more money than you would have through a Chapter 13, besides you will get out of debt faster as well, and not experience the many negative consequences of a bankruptcy proceeding.

Steve Bis is a credit card debt analyst with the US Consumer Advocate, which practices in credit card debt reduction.