Dealing with Debt

What Are The Pros And Cons Of Filing Bankruptcy?

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Making the choice to declare bankruptcy is not a decision people should take lightly. For some people, bankruptcy may be the only choice. A certified credit counselor and a bankruptcy attorney can help you find out what your options are and help you decide. Filing bankruptcy could save you from losing your home, your car, and other belongings that are important to you or your family.

Filing for bankruptcy should never be a rash decision, as there are some real drawbacks with doing so. However, it is sometimes the right decision for some people, and filing for bankruptcy can lead to a far better future, both financially and for your mental health.

Here are a few of the Pros and Cons:

Pro: A Chance to Regroup –

Filing for bankruptcy gives you breathing room. No matter what type of bankruptcy you’re filing, doing so ensures that you’ll be able to regroup and focus on charting a path forward. In addition to ending demand letters and some legal threats, this lets you stop calls from creditors to your home and, potentially, your family and business location. In some cases, filing for bankruptcy can let you sleep more comfortably at night and recover from the downward spiral out-of-control debt can cause.

Con: An Ongoing Process –

In most cases, bankruptcy isn’t a simple one-step process; after it’s been filed, bankruptcy often demands certain tasks. For example, those who file for bankruptcy might end up having their relief rescinded if they end up inheriting money or start making a significant profit in the future. Furthermore, some types of bankruptcy require individuals to make ongoing payments, and failing to do so can cause further problems. While post-bankruptcy financial management is often simpler than trying to handle debts that have spiraled out of control, it still requires a serious commitment and lifestyle change.

Pro: Maintain Your Life –

Filing for bankruptcy can feel like a failure, and pride often delays the process for some. However, it also ensures that you’re able to maintain a certain baseline for your life. Bankruptcy typically protects your home, ensuring that you and your family can maintain at least a baseline quality of life. Cars are typically protected as well, so you can continue working. Without these two elements, it’s hard to make money at all, and filing for bankruptcy, especially Chapter 13 bankruptcy, enables you to continue being productive.

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Con: Long-Term Ramifications –

Filing for bankruptcy means giving up your credit cards, which means you won’t be able to spend money as you once did in the past. It can also make certain tasks more difficult; hotels and car rental companies, for example, often require a credit card. Furthermore, bankruptcies also greatly reduce your chances of getting approved for certain types of loans, and they can even impact rental agreements. Bankruptcies stay on your credit reports for 10 years, so it will be some time before you’re able to fully recover. However, what you do while your bankruptcy remains on your credit report can demonstrate that you’re a good client for loans and agreements; it’s by no means a dead end.

Filing for bankruptcy can feel like admitting defeat. However, it can potentially serve as a means to recover from problems that would be unsolvable otherwise. While there are negative elements involved in filing for bankruptcy, make sure to consider if it’s the right thing to do for you and your family. Speak with a bankruptcy attorney and a certified credit counselor to see what they have to say.

What happens when you first file for bankruptcy?

The law dictates that you must complete a bankruptcy counseling session and obtain a certificate of completion before you can file for bankruptcy. All collection actions will stop when you do file for bankruptcy. Creditors must stop calling you about past due credit cards. Collection agents would need to go through your attorney with all inquiries about your financial situation. Foreclosure and repossession proceedings, as well as garnishment actions, are all stopped once you have filed for Chapter 13 bankruptcy.

When you file for bankruptcy, the court automatically issues an Order for Relief that includes an action known as the “automatic stay.” The automatic stay directs your creditors to cease their collection activities immediately. However, the lender of a foreclosure can file a “motion for relief from the automatic stay” and if that happens, the foreclosure process could start up again if the motion is granted.

What happens during your bankruptcy before it’s discharged?

Student loans are almost never included in a bankruptcy. If you can show that your student loan payment is an “undue hardship” on you and your family, the student loans may be discharged in the bankruptcy. It is very difficult to prove “undue hardship” unless you are physically unable to work and there is no chance of you making money another way. To discharge your student loans under this special case, you must file a separate motion with the bankruptcy court and present your situation before a judge.

If you want to keep a credit card when filing for bankruptcy, it has to have been without a balance for a long time. In other words, you don’t have to list a credit card if there’s no balance on it and if there hasn’t been a balance for quite some time. All credit cards that you have NOT paid off or even RECENTLY paid off have to be declared in the bankruptcy or it could be considered fraud.

You will have your chance to explain to the judge how you got into the financial situation you are in and why you need these debts to be discharged in the bankruptcy. Although bankruptcy filing can be embarrassing, it may be the only way to give you and your family a chance to start over. After declaring bankruptcy, people can begin the slow process to reestablish their credit and start their lives over on an even level.

What happens after your bankruptcy is discharged?

A bankruptcy will stay on your credit report for 7-10 years and that could also hinder you when applying for a job, buying a car or even getting life insurance. Obtaining a mortgage within 2-3 years after the discharge of a bankruptcy would most likely be very difficult. You may find lenders out there willing to work with you but chances are you’ll need a large down payment and you’ll be hit with a very high interest rate. It is up to each credit card company on how long after a discharge they will approve someone for a credit card. Expect to get some credit card offers with extremely high interest rates and annual fees at first.

Debt Management Program – Options other than bankruptcy?

Before you file for bankruptcy, make sure you check out all of your options. A debt management program, like the one at Advantage CCS, could help you get out of debt without having to file for bankruptcy. Call us today and one of our certified credit counselors will work with you on a budget and give you some different options. You may find out that you can get your finances back on track without having to declare bankruptcy.

Author: Lauralynn Mangis
Lauralynn is the Online Marketing Specialist for AdvantageCCS. She is married and has two young daughters. She enjoys writing, reading, hiking, cooking, video games, sewing, and gardening. Lauralynn has a degree in Multimedia Technologies from Pittsburgh Technical College.