When faced with a mountain of debt, failing to make payments on time, you might think about filing for bankruptcy. Filing for bankruptcy can affect your finances for many years to come. However, for many people, it is a good idea because filing provides some benefits. Before you decide to file for bankruptcy, take a look at some of the pros and cons of filing. This would help you determine whether it makes sense to file or not.
Advantages of Filing for Bankruptcy
· An Automatic Stay
Once you file for bankruptcy, the court will issue an automatic stay that would prevent creditors from pursuing any debt collection activity. This doesn’t cancel your debt, but it suspends all debt collection proceedings from creditors until the stay lifts or the case completes. You won’t get any letters or calls from collectors and won’t have to worry about wage garnishments, property repossessions, home mortgage foreclosures, and lawsuits on your debts.
· Help You Keep Your Car or House
If you have fallen behind on your car or home loan payment and are afraid that you would lose the property, then filing for bankruptcy would stop a repossession or foreclosure. Chapter 7 bankruptcy won’t allow you to catch up on the payments; however, filing for Chapter 13 bankruptcy would help you make the payments through a repayment plan.
· The Discharge
If you file for Chapter 7 bankruptcy, all your debts would get discharged, and you won’t have to worry about creditor harassment. If you don’t want to remove debt and can afford to make payments but need some relief in the repayment schedule, you can file for Chapter 13 bankruptcy.
Disadvantages of Filing for Bankruptcy
· Effect on Credit
This is one of the major drawbacks of filing for bankruptcy. Bankruptcy filings remain on the credit report of the individual for ten years. However, the obligation to repay debts is erased as all debts are discharged through filing for bankruptcy. The effect of bankruptcy on credit can affect your ability to qualify for a loan in the future.
· Some Property Loss
If you aren’t able to exempt all of your real estate or personal property under the exemptions of bankruptcy, the court may seize some of your property and sell it. The money would then be used to pay off creditors.
· Issues with Opening a New Bank Account
The account you already have in different banks might not be closed after you file for bankruptcy. However, most banks won’t allow you to open a new account following the bankruptcy.
If you think that the advantages of bankruptcy outweigh its cons for you, you could consider filing for Chapter 7 or Chapter 13 bankruptcy.