Declaring bankruptcy allows individuals or businesses that are unable to pay their debts to resolve their financial difficulties. Learn how to proceed with the pros and cons of filing for bankruptcy.
Advantages and Disadvantages of Bankruptcy
Individuals or businesses who are unable to pay their debts can declare bankruptcy. They can start rebuilding their credit and lives in a positive and financially stable manner with it.
Most people find filing for bankruptcy to be a scary and overwhelming process. It is, however, often the right decision.
What Are the Advantages and the Benefits of Filing for Bankruptcy?
If you cannot pay off your debts, bankruptcy may be an option for you. There are several advantages of bankruptcy, including:
The Automatic Stay
Bankruptcy puts into place what is known as the “automatic stay.” The automatic stay prevents any of your current creditors from collecting on their debts.
All forms of contact are included. You will no longer be able to be contacted by creditors to collect debts once the automatic stay is in place. While you attempt to resolve your financial issues, the automatic stay will protect you from creditors.
An automatic bankruptcy stay may also prevent your home from being foreclosed upon during the bankruptcy process and halt current court cases against you (where someone is trying to collect money from you).
Discharging Your Debts
Bankruptcies are primarily filed for this reason. It is difficult to improve financial health when debts get out of control. The debtor can, however, discharge many types of debt, allowing them to start over and make better financial decisions.
When you discharge a debt, it is completely erased, and you are no longer responsible for paying it. There are some types of debts that cannot be discharged, unfortunately. There are, however, many types of debt that can be forgiven, such as credit card debt and medical debt.
Rebuilding Your Credit
Your credit score will initially be negatively affected by bankruptcy. If you file for bankruptcy, your credit score will suffer, and a record of the bankruptcy will appear on your credit report for 7-10 years.
However, after clearing your debts and starting over financially, you may be able to improve your credit over time. If you are debt-free, you can start paying your bills on time, which will eventually improve your credit score.
What Are the Disadvantages and the Drawbacks of Filing for Bankruptcy?
Under the right circumstances, bankruptcy can be beneficial, but it is important to understand the downside of filing for bankruptcy, as well:
Your Credit Report
Although you can eventually rebuild your credit after a bankruptcy, you will initially notice a decline in your credit score. Your bankruptcy will also appear on your credit report for 7-10 years.
Whenever your credit report is pulled (for example, if you apply for a loan), lenders and others will be able to see that you declared bankruptcy.
When you file for bankruptcy, you will probably lose any credit cards you have. A home mortgage or any other significant line of credit is also unlikely for you. This is a drawback to declaring bankruptcy.
Your Property May be Confiscated
Some of your property may be taken by the court and sold in order to repay your creditors during the bankruptcy process. With the help of a lawyer, most or all of your property can be protected in bankruptcy through bankruptcy exemptions. It is common for people who file for bankruptcy to keep all of their property by using bankruptcy exemptions.
Some Obligations Are Nondischargeable
The importance of this cannot be overstated. In bankruptcy, many types of debt can be discharged, but some types cannot. Tax debts and legal fines are often not dischargeable. Support payments ordered by the court, such as child support and alimony, cannot be discharged. It is almost impossible to discharge student loans, which can be very large debts.
You should also keep in mind that bankruptcy only applies to your own debts. All responsibility for the debt will go to your joint debtor if you hold the debt jointly with someone else.
Furthermore, liens attached to your property cannot be discharged through bankruptcy. By filing motions with the court with the assistance of an attorney, some liens may be avoided during the bankruptcy process.
Limits to Filing for Bankruptcy
After filing for bankruptcy, you cannot file again for about six years. You may be left without similar recourse if additional debts arise after bankruptcy.
Even though bankruptcy has many advantages, as stated above, it can also negatively affect your lifestyle and long-term financial situation. Due to the list of disadvantages, you should think carefully before filing for bankruptcy. Employers knowing about your bankruptcy can be a downside to bankruptcy.
Many people find bankruptcy embarrassing and have a negative mental reaction to it.
Last but not least, bankruptcy often carries a stigma, which can negatively impact your professional and personal life. The benefits of bankruptcy often outweigh the disadvantages, but you should review the pros and cons of bankruptcy for yourself.
What Are Some Common Bankruptcy Legal Issues?
It is not common for personal bankruptcy petitions to be denied, but in certain circumstances, they can be. You will be approved for bankruptcy depending on how much income you make compared to how much debt you have.
The debtor may be denied bankruptcy if they lie about how much certain assets cost or how much income the debtor made during the year. If the debtor conceals financial assets and records, their bankruptcy may be denied. One of the motivations for filing for bankruptcy is to be completely honest about one’s financial situation and to create a fresh financial start.
It is also possible for bankruptcy filings to be denied for technical reasons unrelated to the debtor’s honesty. A bankruptcy petition may be thrown out if the paperwork is not filed on time or incorrectly or if other conditions for filing are not met.
In addition, the court can change the debtor’s type of bankruptcy, or “Chapter,” to one that is more suitable for their situation.
In order to make a bankruptcy petition worthwhile, you should be completely honest about your financial situation and handle (or have your lawyer handle) all technical aspects of the proceedings correctly. An effective bankruptcy can help you get back on track with your life if done correctly.
Should I Contact a Bankruptcy Lawyer?
Bankruptcy may or may not be the best solution for your financial problems, depending on your situation, your debts, and how much property you need to protect. An experienced bankruptcy lawyer should be consulted if you are considering bankruptcy.
The majority of people who file for bankruptcy in the United States do so with the assistance of an attorney, as with all court cases. Bankruptcies come in many different forms, and there are rules that go along with each. An experienced bankruptcy lawyer can be very helpful.
Finding the right bankruptcy attorney is crucial since bankruptcy is a complex legal claim. A bankruptcy attorney can help you determine whether to file for bankruptcy and what type of bankruptcy you should file. Furthermore, if you decide to file, an attorney can ensure that your property is protected, all of your dischargeable debts are discharged, and your creditors do not violate your rights. By doing so, you will be on the right path to financial recovery when you complete your bankruptcy.