Knowing the pros and cons of bankruptcy is extremely important when considering filing for bankruptcy as your last resort. Filing for bankruptcy is appealing to some because it can eliminate the legal obligation to pay most or all debts. The discharge of most debts is the principal goal of filing for bankruptcy.
Bankruptcy can be a quick and easy way to end creditor harassment, hardship, and anxiety caused by overwhelming debt.
Bankruptcy can provide total protection for your home, car, or other vital property. It can stop foreclosure on your home and allow you to catch up on missed payments.
In some cases, bankruptcy forces the creditor to return already repossessed property.
Bankruptcy can also provide some relief regarding employment. Normally, bankruptcy prevents any garnishment of wages or other income after the petition is filed.
As mentioned briefly before, bankruptcy can put an end to creditor harassment. The debtor gains a court-ordered automatic stay instantaneously after filing a petition for bankruptcy.
This automatic stay prohibits all sorts of collection attempts by creditors, thereby allowing the bankruptcy process to proceed in an orderly fashion. This feature provides an abrupt stop to most creditor actions against the debtor including garnishments or attachments, repossessions, utility shut-offs, foreclosures and evictions.
Lastly, bankruptcy can restore or prevent termination of utility service for nonpayment of previous bills.
The fundamental aim of the advantages you receive from filing bankruptcy is to lessen your chance of having to file for bankruptcy again in the future.
Despite all the advantages that bankruptcy may provide, there are also just as many disadvantages. The biggest disadvantage is bankruptcy’s effect on your credit and reputation.
Bankruptcy remains on a credit history for as long as the law allows, sometimes up to 10 years. Anyone who requests a credit report will be informed of the bankruptcy filing.
The extent of harm this can cause to future credit depends on the situation. As bankruptcy has become more prevalent in the United States, some creditors have chosen not to automatically exclude the growing number of people who have filed a bankruptcy case.
Bankruptcy’s effect on one’s reputation in the community can only be evaluated locally, on a case-by case basis, and also weighed against the advantages that bankruptcy offers. In a small town, especially if debts are owed to local people, filing for bankruptcy will not be forgotten.
Related to the problem of reputation is the discrimination against debtors who have filed for bankruptcy.
The bankruptcy code alleviates most of this problem because government institutions may not discriminate on the basis of a bankruptcy or discharged debt. This also applies to utility companies, housing authorities, and private employers.
However, there is a difference between discrimination based on bankruptcy or discharged debts and discrimination based on future financial responsibility. Some creditors may refuse new credit or other services if the refusal is properly based on other considerations.
When weighing the pros and cons of bankruptcy it is important to also consider the expenses involved.
Cost of filing is another possible disadvantage to consider before filing. Filing for bankruptcy includes attorney fees, court fees, fees for counseling after the case has been filed, and many other miscellaneous fees. Be sure to consider if the cost of filing will be worthwhile.
Lastly, in some cases bankruptcy fails to solve the underlying problem, and its advantages will go unrecognized. This is the case if a debtor’s debts are fully secured.
Before filing bankruptcy, it is important to understand all the pros and cons of filing in your particular situation.
Consulting with a bankruptcy attorney in advance of filing is recommended in most cases. A good attorney will give you an honest appraisal of your situation and point you in the right direction.
We hope this information has proven helpful to you in weighing the pros and cons of bankruptcy for your personal situation.