Pros and Cons of Filing Bankruptcy
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Pros and Cons of Filing Bankruptcy
Declaring bankruptcy allows individuals or businesses that are unable to pay their debts to resolve their financial issues and start rebuilding their credit.
Filing for bankruptcy has many pros and cons, depending on your situation. This article will discuss the advantages and disadvantages of filing for bankruptcy to help you decide if bankruptcy is right for you.
When you are unable to pay off your debts, bankruptcy may be the answer. Some of the pros of filing for bankruptcy are:
Pro #1: The Automatic Stay: Filing for bankruptcy will trigger what is known as the "automatic stay." The automatic stay puts a freeze on all debt collection efforts against you. This means that creditors must immediately stop calling you or sending you threatening letters. The automatic stay can even stop a foreclosure or halt a pending court case against you. In most cases, the automatic stay will last for the duration of your bankruptcy case.
Pro #2: Discharge Your Debts: The primary reason people file for bankruptcy is to discharge their debts. Discharging a debt will absolve you of any personal liability for the debt. While some types of debts (e.g., child support payments, certain tax debts, and student loans) may be nondischargeable, most debts can be wiped out through bankruptcy.
Pro #3: Begin Rebuilding Your Credit: While a bankruptcy will remain on your credit report for 7-10 years, bankruptcy can prevent you from falling deeper and deeper into debt by allowing you to discharge your debts. Discharging debts through bankruptcy enables individuals who would not be able to pay off their debts to start improving their credit. In fact, it is not uncommon for individuals to start receiving offers to obtain credit cards shortly after filing for bankruptcy.
Though there are many pros to bankruptcy, it is important to understand the disadvantages when deciding whether bankruptcy is the best option.
Con #1: Your Credit Report: A bankruptcy filing will remain on your credit report for 7-10 years. Having a bankruptcy noted on your credit report may make it difficult to take out loans or buy a home. On the other hand, having numerous debts in default will also adversely affect your credit rating. If you are unable to pay your debts, a bankruptcy may enable you to begin rebuilding your credit faster than not filing.
Con #2: You Can Lose Property: When you file for bankruptcy, some of your property may be seized by the bankruptcy court and sold to pay your creditors. However, through the assistance of an attorney, most or all of your property can be protected in bankruptcy through the use of the bankruptcy exemptions. By using the bankruptcy exemptions, it is common for people who file for bankruptcy to keep all of their property.
Con #3: Some Obligations Are Nondischargeable: While most debts are dischargeable in bankruptcy, some debts, such as student loans, many types of tax debts, support orders, or fines may be nondischargeable. Additionally, bankruptcy only discharges personal liability for debts. This means that liens, which attach to your property, cannot be discharged through bankruptcy. However, through the assistance of an attorney, some liens may be avoided during the bankruptcy process by filing motions with the court.
Should You Contact a Bankruptcy Lawyer?
If you are contemplating bankruptcy, you should consider discussing your options with an experienced bankruptcy attorney. A bankruptcy attorney can help you weigh the pros and cons, and, if you decide to file, help ensure that your property is protected, your dischargeable debts are discharged, and your rights are protected.
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Last Modified: 08-20-2014 10:52 AM PDT
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