Benefits of Bankruptcy
Filing for bankruptcy is a complicated, emotional process. It takes more work and time than most people realize, but it can also be the right solution for significant debt issues. It can help to understand what bankruptcy can and cannot do to improve your financial situation.
The Honest Benefits of Bankruptcy
Consult with a bankruptcy attorney or educate yourself on your options — you may find that filing for bankruptcy could help you out of a difficult financial bind.
Most filers find that bankruptcy eases stress by stopping:
- Collections agency calls or harassment
- Debt lawsuits from creditors
- Wage garnishment (creditors taking money from your paycheck)
- Foreclosure (unless the property has already sold)
- Repossession of some property (in Chapter 13)
Bankruptcy will also:
- Get rid of many debts (in Chapter 7)
- Protect some property from being sold (depending on exemptions in your state)
- Put an end to growing debt and give you a fresh start to turn things around
Is Bankruptcy a Good Idea for You?
The decision to file for bankruptcy is a serious one. There are several considerations worth examining closely before getting started:
- The impact on your future ability to access credit, lenders, or low interest rates
- The impact on your credit report
- Whether you could lose assets (if you file for Chapter 7)
- The differences in the time and expense associated with each form of bankruptcy
- Whether you are eligible for certain forms of bankruptcy
- Whether you can retain specific valuable assets from repossessions (many states have exemptions)
Considering other impacts can be critical in deciding whether to file for bankruptcy or which form is a better option. Some bankruptcies may:
- Fail to discharge credit card debts
- Impact your pension plans or other assets
- Create financial issues for co-signers
- Stop foreclosure
- Feel like a significant invasion of your personal privacy with the bankruptcy court and working with your bankruptcy trustee
Any of these concerns may impact the desirability of the relief provided. However, none of these reasons are worse than staying in overwhelming debt or making your financial situation worse. Sometimes, you simply need debt help and cannot get there alone. Bankruptcy will give you a fresh start, and you can work towards the financial situation you want.
What Happens After a Chapter 7 Bankruptcy?
Those who pursue a Chapter 7 bankruptcy should be aware of some potential problems or concerns. Many forms of debt cannot be discharged under Chapter 7 bankruptcy, including:
- Government-funded student loans
- Some forms of tax debt
- Federal tax liens
- Child support
- Alimony or spousal support
- Debts for personal injury or death arising from a motor vehicle accident
- Fines and penalties for violating the law
- Certain tax-advantaged retirement plans
- Cooperative housing fees
Potential applicants for Chapter 7 bankruptcy should be aware that even private student loans are rarely discharged without a special showing of undue hardship. This can be hard to prove but can happen if you become permanently disabled and cannot work.
Solving Bankruptcy Problems
Following a bankruptcy, you may need to correct any inaccurate reports from former creditors. To do this, you will need to engage in a process with the credit bureau.
This can entail contacting former creditors for verification of the satisfaction of debts. Even when these issues are resolved, those who have completed a bankruptcy can still expect to:
- Pay higher credit rates
- Have higher down payments
- Need to produce a co-signer when attempting to secure new credit
These complications are not the end of the world. They may require using a mortgage broker when seeking to purchase a house.
Have Questions About the Benefits of Bankruptcy? Ask a Lawyer
Even though it may be counterintuitive, there are benefits to bankruptcy when you have debts that you can't pay. You will get a clean slate, and most negative outcomes will fade from your record within a few years. But whether or not you should file for bankruptcy is heavily dependent on an individual's specific circumstances.
For this reason, it can be very beneficial to speak with a local bankruptcy attorney who can explain the benefits and downsides to filing for bankruptcy in your particular situation.