Don't jump too quickly into bankruptcy

Dear Dave,

What are the long-term effects of declaring bankruptcy?

Brittany

Dear Brittany,

One of the biggest aftershocks of filing bankruptcy is that it stays on your credit report for years afterward. A Chapter 7 filing, which wipes out everything and gives you a clean slate, stays on your report for 10 years. Chapter 13, which is a repayments plan, and Chapter 11, another type of large bankruptcy or business bankruptcy, both stay on your credit bureau report for seven years.

Another big problem is that it can follow you around when it comes to applications or when you apply for different types of licenses. Many of these ask if you've ever filed bankruptcy. It doesn't ask if it's still on your credit report; it will ask if you've ever filed bankruptcy. If you have, you'll have instances for the rest of your life when you have to admit it and explain it all over again. So, it's an emotional scar that follows you around for a long, long time.

Too many bankruptcy filers never really recover from their financial distress because they never learn new and better ways to manage their money. That's why I recommend people do everything they can to avoid bankruptcy. It's not an easy do-over; it's a last-resort kind of thing. And in the vast majority of situations it's just not necessary.

-Dave

Dave Ramsey is America's trusted voice on money and business. He has authored five New York Times best-selling books: Financial Peace, More Than Enough, The Total Money Makeover,EntreLeadership and Smart Money Smart Kids. The Dave Ramsey Show is heard by more than 6 million listeners each week on more than 500 radio stations. Follow Dave on Twitter at @DaveRamsey and on the web at daveramsey.com.