If you're in financial trouble and considering bankruptcy as an option it's important to know the different pros and cons associated with filing bankruptcy and these are outlined in this article. When I conduct bankruptcy consultations the person I am meeting with often tells me "I never thought I would be in this situation." People filing for bankruptcy are usually experiencing debt problems due to a loss of job, a reduction in pay, or because of a serious health problem. Most people are going through an incredibly difficult time in their life and simply don't know how to best solve the problem.
Bankruptcy may not the best solution for every debt problem. However, many people dismiss it out of hand without taking the time to learn what the process is, what bankruptcy can do for them, and what the actual consequences are. So here are some of the pros and cons of bankruptcy and how it can help you solve your debt problem.
PROS
Eliminate Debt: It is no surprise that the purpose behind filing bankruptcy is to eliminate debt. Chapter 7 bankruptcy is particularly good at eliminating unsecured credit card/medical bill type of debts. In a Chapter 7 bankruptcy they are completely eliminated this is known as a discharge.
Collection Calls Will Stop: Immediately upon the filing of your bankruptcy case the bankruptcy court issues an order that stops all collection efforts against you. This means the telephone calls will stop. Lawsuits will stop. Your bank won't even be able to foreclose on your home. This order issued by the bankruptcy court is called the "Automatic Stay." This order allows you some breathing room from your creditors - time to take a step back and put a plan together for moving forward.
Fresh Start: It is almost a cliche but the filing of a bankruptcy case really does give you a fresh start. This is most clear in situations where a client has recently gone through a divorce. Often a divorce is immediately followed up with a bankruptcy filing, mostly due to the fact that each spouse took on a hefty amount of debt through the divorce decree without an ability to pay it. Eliminating the debt allows you to start over, rebuild your credit, and move on with your life.
CONS
Credit Score: The biggest impact of bankruptcy on most people is the damage done to the credit score. Though often when people are in financial trouble their credit score has already taken a severe hit. Bankruptcy will stay on your credit report for 10 years. However it is by no means a 10 year sentence of no credit. In fact most are surprised to learn that you can get loans and credit cards relatively soon after filing bankruptcy. You can even get an FHA home loan two years after you Chapter 7 bankruptcy discharge. As stated earlier often by the time you file for bankruptcy the damage has already been done to your credit score, and in fact the filing of a bankruptcy may actually help improve your credit more quickly than it otherwise would.
Stigma: Many people are worried what others will think of them if they file for bankruptcy. It is important to know that while bankruptcy is a "public proceeding", no one other than your creditors will know of your bankruptcy unless you tell them. Sure, they bankruptcy court would let them know you filed if they asked, but they would literally have to go down to the bankruptcy court and make a request to get information on your bankruptcy case, which is not likely to happen.
Bankruptcy may not the best solution for everyone, and if it isn't, I will tell you and let you know your options. But if you are suffering through overwhelming debt it is worth your time to learn more about bankruptcy as an option. I offer a free 30 minute telephone bankruptcy consultation where we can discuss your specific situation. So what are you waiting for?