Before filing for bankruptcy you must decide if bankruptcy is the best option for dealing with your debt problems. Choosing to file is a difficult and often an emotional decision for many debtors. It is a decision that cannot be taken lightly, though, it is a decision that can end your financial struggles and bring you peace of mind.
As you explore how bankruptcy can help you, consider these 3 things:
- Will bankruptcy deal with your debt problem?
Not all debts are erased through bankruptcy. If the majority of your debt is a type that is nondischargeable, then bankruptcy may not be a viable solution to your debt problem.
Unsecured debts, including credit cards and medical debts, are dischargeable and may be erased through bankruptcy. Nondischargeable debts, such as newer tax debts, unpaid child or spousal support, or student loans, must be paid back even if you successfully file for bankruptcy.
- Weigh the advantage and disadvantages of bankruptcy.
Bankruptcy is a powerful legal tool that offers many benefits, but it has pitfalls too. It is important for you to weigh the advantages and disadvantages. As you face your debt problems head-on, always make the decisions that are right for you.
The most compelling advantages of bankruptcy include:
- Discharge of debt. You never have to pay back debts that are erased in bankruptcy.
- Cease and Desist of all collection actions. The automatic stay, a powerful provision of the Bankruptcy Code, makes it illegal for your creditors to continue to attempt to collect on debts from you once you file for bankruptcy protection. As soon as you file all phone calls, wage garnishments, lawsuits, and all other collection activity must stop.
A few potential disadvantages may include:
- Damage to your credit score and credit report. Filing for bankruptcy harms your credit score in the short-term and bankruptcy will remain on your credit report for 7 to 10 years, depending on which chapter you file. However, debtors out of bankruptcy are able to get loans and lines of credit. Many are surprised by how quickly their credit score begins to improve once their case is over.
- The possibility of losing property. While the vast majority of debtors get to keep most or all of their assets and belongings through bankruptcy, there are instances when not everything can be protected.
- Filing for bankruptcy protection too early may preclude you from discharging debts you incur later if you end up in a worse situation. Timing is critical when it comes to choosing a date on which to file.
Bankruptcy is a complex area of law and every case is fact-specific. For your particular situation, the advantages may far, far outweigh any potential drawbacks.
- Do you have an unresolved issue that led to your debt problems?
Did you fall into debt because you lost your job and now you’re gainfully employed? Or, did a medical issue that is now resolved lead to unmanageable debt? The benefits of bankruptcy can be much greater when the conditions that led to the debt problems are resolved prior to filing.
Alternatively, did you fall into debt by not following a budget and regularly spending more than you earn? We are not here to judge, but we feel strongly about the benefits of bankruptcy and the fresh financial start it gives to people. If there is an underlying issue that led to debt problems that is not yet resolved, we want to discuss that with you. Together we can ensure that filing for bankruptcy gives you the fresh financial start you deserve.
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We are a debt relief agency. We help people file for bankruptcy relief under the U.S. Bankruptcy Code. Find out more about Bankruptcy in our guide: All About Bankruptcy.