More than 1.5 million people file for bankruptcy every year. Filing bankruptcy helps people that are no longer able to pay their debts. It allows them to either liquidate their assets to pay off their debts or helps them create a repayment plan to get a fresh start.
There are different types of bankruptcy to consider and while there are some advantages of declaring bankruptcy, there are also some consequences of bankruptcy that you must learn about.
Do you want to learn more about the pros and cons of filing for bankruptcy and how a bankruptcy lawyer can help? Keep reading this guide for everything you should know about the advantages and disadvantages of bankruptcy.
Pros of Bankruptcy
Bankruptcy is often a necessary step to take when you are not able to pay back your debt. Because it allows you to work out a deal for your debt payments, it provides many benefits for individuals and businesses.
Here are some of the top advantages that come from filing for bankruptcy.
Relief From Multiple Creditors
One of the biggest advantages of filing for bankruptcy is that it provides you with relief from multiple creditors. If you have several different loans and financial obligations, it can be an overwhelming amount of pressure.
The interest rates can continue to climb and you may be dealing with several different creditors trying to get their payments. When you file for bankruptcy, you can get immediate relief from all of these creditors.
Depending on the type of bankruptcy you file, you may not have to repay some or all of your financial obligations.
Another reason why you may want to file for bankruptcy is that it grants you an automatic stay from your creditors. As soon as you file for bankruptcy, you are protected and your creditors are not able to pursue you for debt payments.
They also cannot take any other action against you until you have a repayment plan in place or until the bankruptcy is discharged.
If you are looking for immediate relief from your financial obligations, filing for bankruptcy may be the best solution.
You Get a Representative
Next, when you file for bankruptcy, you will also be given a court-appointed representative or trustee. They will take care of you until your bankruptcy is discharged and will do their best to help you through each step of the process.
This representative will also be in charge of all communication from your creditors. This is especially helpful to those who have been the victim of unfair practices by debt collectors.
This includes misrepresentations, threats, and even harassment.
Lower Debt Settlement
Another reason why filing for bankruptcy is beneficial is that it can provide you with a lower debt settlement. Often, your debts will be settled for less money than what you owe.
Your creditors will have to accept whatever deal is determined in your case, even if you are not required to pay anything at all.
Plus, these deals are final! Once creditors approve a deal, they will never be able to ask you to pay more than the agreed-upon amount.
You are Granted a Fresh Start
Finally, filing for bankruptcy can provide you with a fresh start on your finances. While you may need to sell most of your assets to pay off debt, any additional debt that is not paid off can be discharged.
If you have been weighed down by debt for most of your life, this will give you a new chance to start over financially.
Although bankruptcy can affect your credit score, using good credit practices can help you recover good credit in a few short years.
Cons of Bankruptcy
While there are many advantages of filing for bankruptcy, there are also some consequences. Learning more about these disadvantages can help you determine whether or not filing for bankruptcy is the best for your financial situation.
Here are some of the top cons of filing for bankruptcy.
Cost of Bankruptcy
One of the biggest drawbacks of filing for bankruptcy is the cost. First, you need to consider the cost of filing for bankruptcy, including court fees. This can cost well over $1,000 you will have to pay out of pocket.
Plus, you will have to pay additional legal fees if you hire a bankruptcy lawyer.
Not only will you have to pay expensive legal fees, but you can also lose valuable assets. This depends on the type of bankruptcy that you file for, how much your assets are worth, and more.
In many cases, you can lose your home, car, and other valuable assets.
Some Loans Are Exempt
Another drawback of filing for bankruptcy is that some types of debt are exempt from bankruptcy. This means that they will not be able to be discharged and you will still be responsible for them after filing for bankruptcy.
For example, federal student loans are exempt from bankruptcy. Similarly, there are other liabilities like taxes, court orders, and even child support that cannot be written off with bankruptcy.
If you have many of these types of debt, filing for bankruptcy may not provide you with a completely fresh start.
Joint Accounts May Be at Risk
Next, filing for bankruptcy will not protect other parties that you have a joint account with. For example, if you have cosigned on a loan or shared a bank account with your partner, your creditors can demand payment from the other parties that are not bankrupt.
This may put your loved ones at risk and may simply transfer the responsibility of debt payments to them.
A Drop in Credit Score
When you file for bankruptcy, it can also lead to a significant drop in your credit score. Your bankruptcy will remain on your credit report for years after filing, depending on the type of bankruptcy that you file for.
Not only will it drop your credit score, but it will make it difficult for you to improve your credit in the future. Whenever you apply for more than a few hundred dollars of credit, you will have to report your bankruptcy.
This can make it difficult to receive even small loans for some time. However, your bankruptcy will only typically follow you for a few years.
Finally, there are many future implications that can affect your life if you file for bankruptcy. For example, filing for bankruptcy can lead to a significant drop in your credit score.
This may make it difficult for you to get loans in the future and may even make it impossible to find housing in the future. This is because lenders and landlords will dismiss people who have this black mark on their financial history.
Not only can it affect your financial situation, but it can also have an impact on your career. If you have filed for bankruptcy in the past, it may disqualify you from applying for certain positions. This includes employment in the federal government.
Because filing for bankruptcy can seriously affect your future, it is best to only do this when it is necessary.
Filing for bankruptcy can be a long process, depending on the type of bankruptcy that you are filing for.
First, you must find a bankruptcy lawyer or an attorney that is experienced with bankruptcy law. Then, you must get a bankruptcy counseling session. This session will give you more information about the pros and cons of filing for bankruptcy and may even be able to offer alternatives to bankruptcy.
After your counseling session, you will file for bankruptcy with the court. They will help you liquidate your assets to repay your creditors or can help you create a repayment plan.
You will also have to take a required course before the courts will discharge your debt. This is a debtor education course and will provide you with the knowledge to improve your finances in the future.
Finally, you will get your eligible debts discharged. This will remove your obligation to pay your creditors and you can start to rebuild your credit.
Looking for a Bankruptcy Lawyer? We Can Help
While bankruptcy can be beneficial to many people, there are also many potential consequences of filing for bankruptcy. By learning more about these pros and cons of filing for bankruptcy, you can make an informed decision and decide if it is the best route for your financial needs!
Are you looking for a bankruptcy lawyer or for more information about the bankruptcy process? Bankruptcy Information can help!Contact our team of experts today for more information about our services and to learn more about the pros and cons of filing for bankruptcy.