What are the Pros and Cons of Bankruptcy?
Making an informed decision to file.
Deciding to file for bankruptcy is not a choice that you make lightly. It’s a big decision to go ahead and file so you can move forward. But you need to be informed about the good points and bad points of the choice you’re making so you have peace of mind that you’re making the right choice in your situation.
If you aren’t sure about filing for bankruptcy and feel like you may have other options, the first thing you need to do is talk to a credit counselor. We can connect you with the right experts to help you assess your situation impartially. Call us or complete the form to the right so we can connect you with the services you need.
The upsides of filing for bankruptcy
Here is the good you can get out of filing…
- The automatic stay of filing for bankruptcy means that creditors, lenders and (best of all) collectors can’t contact you. They can’t attempt to get payment or call to harass you. If they do, you can fight back and even be compensated.
- At the end, you’re less burdened. Even if you still have debts to pay (more on that below), you’ll be out from under that huge burden that was holding you back. Final discharge can be really freeing because you’ll finally be able to breathe and stop stressing about debt.
- An automatic stay can delay foreclosure or property repossession. As long as that automatic stay is in place, lenders and collectors can’t move to take your home or other property.
- You won’t be left with nothing. Bankruptcy won’t strip the clothes off your back. While you may lose assets if you opt for Chapter 7, even your home and vehicle may be protected to a certain extent from liquidation, depending on your state.
The downsides of filing for bankruptcy
Of course, bankruptcy isn’t all roses and sunshine. It’s not an easy way out or a get-out-of-jail-free card.
So here are the downsides…
- Your credit score is going to take a hit – probably a big one. The higher your score, the harsher the damage will probably be. Chapter 7 stays on your file 10 years; Chapter 13 only remains 7, but that’s still a long time. You can offset the damage, but it’s going to take work.
- Not all debts can be discharged by bankruptcy. Federal AND private student loan debt won’t be discharged; tax debt may not be discharged, depending on the type and situation; back child support or alimony never gets discharged.
- Your assets will be liquidated during a Chapter 7 filing. On the other hand, you’ll face a 3-5 year repayment plan with Chapter 13, so it’s going to be a long road.
- Cosigners and guarantors aren’t protected from collection on debts that are discharged. So basically, you can get off the hook, but a loved one will be left to get harassed over the remaining balance on a discharged debt unless you pay it off.
- Getting approved for traditional loans and credit cards is really unlikely at least in the first few years after you file.