If you can’t seem to get out from under your mountain of personal debt, filing for bankruptcy may be your best alternative. Having bankruptcy on your record is no longer a social death sentence. Many individuals who cannot keep up with their mounting consumer debt declare bankruptcy yearly, hoping to start over financially. The advantages and disadvantages of declaring bankruptcy are outlined below.
Advantages
Pay Off Your Debts
If you qualify, your unsecured debts can be eliminated in a Chapter 7 bankruptcy. You’ll either be wholly debt-free or have a much more manageable collection of loans to repay and much more discretionary income to make up for any arrears. Similarly, after your Chapter 13 repayment period, any remaining dischargeable debt will be wiped clean, you will need to explore more on how to file for bankruptcy and find out what will work for you.
By declaring bankruptcy and liquidating your assets to pay off your debts, you are free of any obligations to those creditors and can begin building a new, debt-free financial life. You can start over fresh after a successful bankruptcy filing. There may still be damage to your credit, but now that you have a clean slate, the decline will halt, and you may start repairing it.
Helps Stay Away from Utility Disconnections, Foreclosure, and Repossession
When you file for Chapter 7 or Chapter 13 bankruptcy, the bankruptcy court will immediately issue an automatic stay, which stops all collection activities. Foreclosure of a home, the repossession of a car, or the seizure of any other property type is all included here. With the added time and protection from debt collectors, you can finally catch up on your mortgage, utility bills, and other outstanding debts. Your car payments can be incorporated into your repayment plan, and any other assets you wish to keep from repossession can also do so. You’ll be given a second chance to bring your payments up to date and wipe out your outstanding balances on eligible debts.
Fix Your Credit
The decision to declare bankruptcy will have lasting effects on your credit. Many people with mounting debts file for bankruptcy after years of struggling with subpar credit. The process of repairing damaged credit begins with bankruptcy filing. After receiving a discharge or beginning a payback period, you can immediately begin improving your credit. As a person’s debts are reduced relative to income, their credit score often rises. The bankruptcy will no longer appear on your credit report in about seven years.
Enhances Creditors Break
Filing for bankruptcy can provide a reprieve from debt collectors. Bankruptcy’s ability to provide short-term and long-term protection from debtors is a significant perk. While your bankruptcy is underway, you will have temporary protection against foreclosure, eviction, and vehicle repossession, thanks to an “automatic stay.” Once a debt is discharged in bankruptcy, further collection efforts are illegal.
Disadvantages
Loss of Assets
Filing for bankruptcy also carries the risk of losing possessions and money. Assets are classified as either “exempt” or “nonexempt” when a bankruptcy is filed. Property exempt from seizure by creditors is called “exempt assets,” whereas not exempt property might be liquidated to pay off obligations. All states have different exemptions. In most cases, though, they still include things like a car, a house, and various pieces of furniture and electronics. Investments, second houses, and expensive possessions like jewelry and artwork are nonexistent assets.
Social Stigma
When someone declares bankruptcy, many others feel embarrassed or ashamed, which can harm their interpersonal relationships and job prospects. Personal relationships may suffer due to bankruptcy filing, which may be a trying and traumatic event. Friends and family could not comprehend your bankruptcy filing or might have a different opinion of you. Share your financial condition and why you filed for bankruptcy with your loved ones honestly and transparently.
Potential effects on work chances are another non-financial drawback of declaring bankruptcy. While it is not legal to exclude someone from employment due to bankruptcy, certain companies may have a wrong opinion. This is specifically true for jobs requiring handling money or having financial responsibility. Regarding your financial condition and the events that led to your bankruptcy, it’s critical to be open and truthful with prospective employers.
Negative Impact on Mental Health
Dealing with the stress and grief of losing possessions and money is challenging. Maintaining a healthy mind is essential, as knows when to reach out for help from friends and family or a trained expert. Bankruptcy is a stressful and anxious time for many people. They may fear for their financial future and credit rating or feel overwhelmed by the procedure.
Taking steps to alleviate stress and anxiety, such as learning to meditate or talking to a therapist, is crucial. There are several ways to deal with the psychological fallout from filing for bankruptcy. Some examples are talking to people you trust, taking care of yourself, and highlighting the bright spots in your life. Remember that filing for bankruptcy is not an indictment of your character but rather a means to an end getting back on your financial feet.
No Protection From Unsecured Debts
If you have unsecured debts, filing for bankruptcy will not eliminate them all. Filing for bankruptcy does not wipe out all your debts, as popularly believed. Bankruptcy does not wipe out your unsecured debts; obligations like child support and alimony remain. Student loans and tax bills are two more types of unsecured debt that are notoriously difficult to discharge in bankruptcy.
If you choose to discharge your debts in Chapter 7, you are alone responsible for paying them off. If anyone in your family has debts, they are responsible for settling them independently. Chapter 13 bankruptcy filings differ in that they may also shield the cosigner. Yet it works because it’s assumed that you’ll eventually pay off your debt.
Filing for bankruptcy can provide a reprieve from debt collectors. Bankruptcy’s ability to provide short-term and long-term protection from debtors is a significant perk. While your bankruptcy is underway, you will have temporary protection against foreclosure, eviction, and vehicle repossession, thanks to an “automatic stay.” Once a debt is discharged in bankruptcy, further collection efforts are illegal.