Declaring bankruptcy: 3 Advantages and disadvantages

Bankruptcy can be a good choice to get rid of debts and for a fresh start financially. But you must really consider the final options and try to get help from every possible way to get out of debts. Because, bankruptcy has both the advantages and the disadvantages. Your financial advisor can give you detailed overview of filing bankruptcy and it’s after effects on your financial life. It’s very important to understand the whole process. So, here goes some advantages and disadvantages of bankruptcy in order to give you a whole overview regarding the subject.

Advantages of filing bankruptcy

There are lot of advantages once you file bankruptcy. such as:

1. Property gets protected

Your creditors may accuse you and obtain a judgment against you, if you’ve a lot of unsecured debts. The next step can really cost you dearly as the creditor can forcefully sell off your property and garnish your bank accounts. This is the result of the execution of the judgment. But in bankruptcy, the creditors cannot take any of these steps and your property gets protected.

2. Automatic stay order

Once you file for bankruptcy, automatic stay will protect you from the creditors harassment. Automatic stay will stop all illegal collection tactics such as repossessions, lawsuits, garnishments, foreclosures, utility off etc.

3. Debt discharge

If you file for bankruptcy, you can get rid of debts. You can liquidate your assets by filing for Chapter 7 bankruptcy and get all your unsecured debts discharged. This will help you pay off your debts . You can also get rid of the harassment by your creditors.

Other advantages are:

  • Most of your debts will be cleared.
  • It will also allow you to make a new start. (rebuild credit).
  • Debtors can deal with secured creditors during bankruptcy.

Disadvantages of bankruptcy

There are still some disadvantages of filing bankruptcy. You must pay attention to those too. Take a look at the loopholes of bankruptcy:

1. Affect on credit report

Credit report gets affected severely in case of bankruptcy. When you go for Chapter 7 bankruptcy, the report shows it for 10 years but in case of Chapter 13, it remains for 7 years. You need to work hard with your credit maintenance and payments during the period when it remains on your report.

2. Property loss

This is one of the biggest disadvantage of filing bankruptcy. If you go for Chapter 7 bankruptcy, you should liquidate your assets to pay off your unsecured debts. But if you go for Chapter 13 bankruptcy, you’ve a choice of repayment plan and the amount that you need to pay to your creditors every month is also decided.

3. Excessive cost of filing bankruptcy

Filing bankruptcy is costly. You need to pay around one thousand to two thousand dollars to an attorney for a regular chapter 7 bankruptcy. Incase of professional assistances, client need to pay even more.

Apart from these, there are many other disadvantages such as:

  • Bankruptcy will not pay off student loan debt.
  • You need to explain the reason of your bad financial phase to a judge.
  • In chapter 13, you need to follow a rigid budget for next 5 years in order to pay off a fair amount of your accrued debts.
  • You may lose many of your valuable assets.

Final words

Bankruptcy should be your last option. It’s highly advisable that, all debtor should talk to a financial counsellor before filing bankruptcy. Your consultant may give you better alternative, so, think twice before making any decision. If you manage the fees and the whole procedure, then may be it is the most helpful option to get back on a proper financial track.

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