Some people like to moralize about bankruptcy: you must pay all your bills on time, bankruptcy is the easy way out, etc. The reality, however, is that filing for bankruptcy is just a legal option—the same as buying a car, getting married, or choosing to exercise a stock option when the shares hit a certain strike price. It is a route that over 600,000 Americans have taken almost every single year for the past 20+ years.
Therefore, it would be best to simply ignore anyone trying to make a moral issue out of you exercising your legal rights, especially when you can get your finances in a better shape, thus moving forward with a much more optimistic outlook for the future.
Having said that, bankruptcy is not a “one size fits all” type of solution. You must have a clear and realistic overview of what it entails before choosing to move forward with it. Filing for bankruptcy is something you should consider carefully, after becoming aware of not only the benefits but also the consequences that it may entail.
The Pros of Bankruptcy
Personal bankruptcy usually offers debtors a clean financial slate and a much-needed new beginning. For those experiencing multiple debts, bankruptcy presents a number of benefits that, depending on each individual case, might make it the best solution for addressing spiraling financial arrears.
Even so, it would be wrong to assume that it is some sort of “magical cure” that lets you automatically walk away from all your debts.
Some key pros of filing bankruptcy include the following:
You Will No Longer Need to Deal with Multiple Creditors
An immense sense of relief comes with filing for bankruptcy, thanks to putting an end to the pressure of dealing with multiple creditors. Whether you file for a Chapter 7 “liquidation” bankruptcy or a Chapter 13 “reorganization” bankruptcy , all your creditors will have to resolve your issues, even if they were previously unwilling to do so. At the end of the process, you will have a decision that deals with the sum of your debt, so you no longer have to address each creditor individually.
Your Case Will Be Overseen by a Court-Appointed Representative
Once a petition for bankruptcy is filed, a trustee is assigned by the court. This person will operate on your behalf throughout the process and will see your case through to discharge. Your bankruptcy trustee will be vested with the authority to handle all communication between you and your creditors, so you won’t have to personally deal with any of them anymore.
You Will Enjoy the Protection Offered by the Automatic Stay
One of the most important tools at the disposal of a debtor is the “automatic stay”. As soon as you file for bankruptcy, you should be able to benefit from the protection offered by this valuable provision, which will immediately “shield” your assets. This means that your creditors will no longer be able to contact you and pursue payment of your debts. They will be barred from all sorts of actions like garnishing your wages, repossessing your car, or seizing your property without the court reviewing your situation. The automatic stay may also stop foreclosure , eviction, and most other legal proceedings from moving forward until your bankruptcy is discharged or your repayment plan is finalized.
Prevent Foreclosure or Car Repossession
You may be able to delay or even stop a foreclosure or car repossession, particularly if you opt for filing a Chapter 13 bankruptcy. You should be able to repay your past due amount over time rather than having to pay the total amount immediately, based on the plan that will be agreed upon.
Settle or Write off Your Debts
When you file for bankruptcy, the court decides how much your creditors get and they have to accept the payment that will be determined in your bankruptcy case.
If you qualify for a Chapter 7 bankruptcy, you may have all your unsecured debts liquidated, including credit card debt, small loan balances, outstanding medical bills, and so on.
The situation under a Chapter 13 “reorganization” bankruptcy is different, as you will be called to pay at least some of your debts back over time, depending on your financial situation and ability to meet payments. Even so, you may be able to repay your creditors on terms more favorable to you. For example, if you have credit card debts with high-interest rates, the interest will be frozen for the life of your plan. Likewise, if the bankruptcy decision calls for payment of less than 100% of your debts, the remaining balance will be discharged, meaning that these debts will be written off.
Your Bankruptcy Decision Will Be Final
Once your bankruptcy case is closed, a decision is issued, and your creditors approve a deal, there is no possibility for them to reverse it or request that you pay more than what was agreed upon. Additionally, you will benefit from a clear outline of what debts are due, which ones are discharged, and—for Chapter 13 bankruptcies—the terms and duration of your repayment plan.
A Genuine Opportunity for a Fresh Financial Start
The most valuable gift of bankruptcy is probably the opportunity for a fresh start by effectively providing a clean financial slate upon which people can begin to rebuild their financial lives and reestablish their credit. Even though recovering from bankruptcy won’t happen overnight, if you take the right steps and maintain responsible financial habits, you should see change happening in a relatively short time after your discharge.
Cons of Filing for Bankruptcy
As mentioned above, filing for bankruptcy may be a very beneficial solution for many consumers dealing with multiple debts. This, however, doesn’t mean that there are no negative effects. For example, you will have to cover the costs of filing for bankruptcy at a time when your finances are already exhausted. While this minor issue may be easily resolved, with the help of your bankruptcy lawyer, longer-term factors that you need to consider include the following.
Exempt and Non-Exempt Debts
Proceeding with bankruptcy based on the belief that all your debts will disappear is not a wise move. Whether you file for a Chapter 7 or Chapter 13 bankruptcy, it is possible that some of your debts will not be discharged, as not all debt is actually dischargeable. Child support and alimony payments, for example, as well as some student loans, divorce settlements, most unpaid taxes (federal, state, and local), and money borrowed on a credit card to pay said taxes, are generally exempt from being discharged. So are other government debts, such as fines and penalties.
Each person’s case is unique. To have an accurate idea of where you stand, including which of your debts are likely to be discharged, you should check with an experienced bankruptcy attorney who will be able to offer you professional guidance on this matter.
Assets of Value
Most people who file for bankruptcy wish to protect any assets of value that they may have, such as a home or car. Every personal bankruptcy is, however, unique. The risk of losing an asset depends on a number of factors, including the type of bankruptcy you may qualify for, your income, the equity in your assets, etc.
Asset protection is a serious matter you should discuss with a bankruptcy professional, in order to carefully explore your options and choose the best strategy for your situation.
Your Bankruptcy Will Be Public Record
Given that a bankruptcy filing is a court proceeding, it will become part of your public record in your home state. As is the case with other court documents, your bankruptcy petition and the ensuing bankruptcy discharge will be accessible to the public, should someone be interested enough to go to the trouble of searching for it.
Your bankruptcy will become part of your credit report , too. Some filers may worry about this. At the same time, your credit report itself is not a public record: it is entirely up to you to decide who will have access to it besides yourself. You may, for example, grant access to a bank if you are applying for a credit card. Or, perhaps, a prospective landlord if you are looking into renting a property.
It is, therefore, crucial to remember that you do have rights over this matter. Seek professional guidance to familiarize yourself with your rights, as well as alleviate any related worries you may have. For instance, a bankruptcy attorney can inform you about your rights when it comes to disclosing your bankruptcy to an existing or potential employer , the effects of bankruptcy if you are renting a property or are seeking to sign a lease post-filing, etc.
Bankruptcy Will Affect Your Credit
Filing for bankruptcy will grant you some valuable time to sort out your finances. Its end result should allow you to aspire to a much better financial future. At the same time, it will also inevitably affect your credit and remain on your credit report for 7 to 10 years after filing, depending on the particulars of your case. In many cases, bankruptcy will lead to an initial drop in your credit score of 100 to 200 points.
Suffering such a hit on your credit will have consequences that will likely follow you around for a while. For instance, every time you apply for credit of $500 or more, you will be asked to report your bankruptcy. You may also be asked to pay higher car insurance premiums as well as high-interest rates and low limits when applying for new credit. All this may delay certain moves you may wish to make, such as getting a mortgage.
Nevertheless, these negative effects need not be permanent. If you make certain strategic financial decisions, you may rebuild your credit within a couple of years and get yourself a much more optimistic financial outlook than what you had prior to filing.
Contact Roemerman Law
Bankruptcy should not be viewed as an end but rather as a brand new beginning. Despite any drawbacks, it may offer you life-changing financial relief, a way out of crushing debt, and a clear path forward.
In practice, most people qualify for bankruptcy , in some form or another. Getting into court, however, is the easy part. The trick is knowing when to file for bankruptcy and how to do it right, which means that your lawyer will be doing a whole lot more than just helping you fill out forms!
Do you, like hundreds of thousands of American consumers, find yourself facing intense financial pressure and are considering filing for bankruptcy? If so, then the wisest move would be to seek professional advice that will let you explore all of the available options.
