Are you considering bankruptcy? Thinking of whether it’s a good option for you? There is a lot of misinformation about what bankruptcy is and how it affects you. Just like any major decision, filing for bankruptcy requires careful consideration. This post will address some of the main pros and cons of bankruptcy.
PRO #1 DEBT RELIEF
The first pro of bankruptcy is a big one – getting rid of your debt. Whether you choose to pursue installment payments or want a completely fresh start, bankruptcy gives you that option. If you are particularly overburdened by credit cards or other kinds of debt, bankruptcy is a solution that leaves many people in your position with peace of mind.
PRO #2: PROTECTION FROM CREDITORS
When you file for bankruptcy, creditors and debt collectors will be unable to contact you. This is a huge benefit if you’re constantly inundated with unwanted calls about your outstanding debt. Since bankruptcy is a legal process, debt collectors are legally unable to demand payment once you file. This is known as an automatic stay, and it can also delay foreclosure efforts as well.
PRO #3: DEVELOP HEALTHIER FINANCIAL HABITS
Bankruptcy allows you to rebuild your credit and learn some healthier financial habits. Without credit cards to use or the threat of debt collectors at every turn, you can pursue habits like budgeting, saving and start rebuilding your credit. It might seem overwhelming, but you can do it.
CON #1: CREDIT SCORE IMPACT
For many people, the benefits of bankruptcy well outweigh the disadvantages. However, there are cons to bankruptcy that you should consider before you file. The first is the impact bankruptcy can have on your credit. Since bankruptcy erases all or at least some of your credit history, lenders may be more cautious about working with you. If you do get offered a loan or credit card after bankruptcy, you’re likely to see higher interest rates as you begin the process of demonstrating your creditworthiness.
CON #2: EXPENSE
It does cost money to file for bankruptcy, and for some, this is a major stumbling block. There is a fee to file, not including any attorney and legal fees. Financial setbacks are a common reason for people to file for bankruptcy. Keep in mind that the benefit of having your debt erased or significantly reduced can be more than worth the cost of filing for bankruptcy!
CON #3: INCOME AND DEBT RELIEF LIMITS
If you plan on filing for Chapter 13 bankruptcy, there are specific income limits you need to meet. This is to ensure that you have enough income to finance the repayment installations until your debt is discharged. In any form of bankruptcy, not all of your debt may be included in the relief plan as well.