Bankruptcy Advantages and Disadvantages
What are the Disadvantages of Filing for Bankruptcy?
The most obvious disadvantage of filing for bankruptcy is that it will ruin your credit for at least 7-10 years. Some other disadvantages include:
- Losing credit cards
- Losing non-essential possessions
- A record of bankruptcy is maintained on your credit file for at least half a dozen years
- Inability to obtain a mortgage or loans in general for some time
- Tax refunds from federal, state or local governments may be denied based upon your bankruptcy
- Some employers may frown upon your record, especially if the debtor works in the financial field
- Forbidden from being a director for limited liability companies
- Not all debt will be discharged
Will Filing for Bankruptcy Wipe Out All Debt?
There are certain categories of debt that may not be discharged by a bankruptcy filing, including:
- Past due child support, alimony payments, and other debts resulting from divorce settlement agreements or divorce decrees
- Student loans except in certain exceptional circumstances
- Income taxes that are less than 3 years past due
- Court fines
- DUI judgments against the debtor
- Debts incurred by fraudulent means, such as writing a bad check or providing false information on a credit application
If a large portion of the debt is non-dischargeable, it may not make sense for the debtor to file for bankruptcy.
Are There any Advantages to Filing for Bankruptcy?
As soon as a debtor files for bankruptcy, there is an automatic stay and most creditors must stop their collection efforts. In addition, the bankruptcy process is quite fast, usually around a year, compared to other issues and cases addressed by the judicial system. Thus, the debtor can begin rebuilding his credit; financially-speaking, the debtor can start over.
It is true that filing for bankruptcy ruins a debtor's credit for a number of years and may cause embarrassment. However, incurring more debt and facing the harassing phone calls, letters and potential lawsuits from creditors can have the same effect. Filing for bankruptcy will allow many debtors to get started sooner on rebuilding their credit in peace.
Will Some Property be Protected?
Certain categories of property may not be taken by creditors after a debtor files for bankruptcy. The type of exempt property will vary from state to state but typically includes motor vehicles up to a certain value, some clothing and household furnishings, life insurance and portions of earned wages.
In addition, there are different types of bankruptcy. Some chapters of bankruptcy, such as Chapter 13, allow the debtor to reorganize and restructure their debt to avoid liquidation of property.
Should You Contact a Bankruptcy Lawyer?
Bankruptcy can be a complicated process. It is vital to know how the law regulates bankruptcy in your state, including what property exemptions you can claim. A lawyer knows the ins-and-outs of filing for bankruptcy, and can recommend what chapter of bankruptcy is right for you.
Consult a Lawyer - Present Your Case Now!
Last Modified: 04-24-2012 10:19 AM PDT