When you’re sinking into debt, it’s easy to feel overwhelmed by the frustration of not being able to make ends meet month after month. It may seem like an endless cycle of paying off some of your debts and then being forced to take on even more debt to stay afloat. However, it doesn’t have to be this way. There are several alternatives that can help you get out of debt to live a better life, and bankruptcy is one of them.
For many, bankruptcy may feel like a step in the wrong direction, but it may be exactly what you need to free yourself from debt and get a fresh financial start. However, that’s not to say that bankruptcy doesn’t have some downsides.
Here you’ll discover the ups and downs of bankruptcy, so you can determine if it’s the right choice to regain control of your financial situation.
Ups of filing for bankruptcy
Contrary to popular belief, filing for bankruptcy may have many benefits:
Automatic stay against your creditors
One of the critical benefits of bankruptcy is the automatic stay. Once you file bankruptcy, the court will issue a stay that will force your creditors to stop all debt collection actions for a specific length of time. This includes debt collection calls and visits, foreclosures, repossessions, and much more. It will give you a chance to regain your peace of mind while getting rid of most of those overwhelming debts.
Prevent further legal action
When you fall behind on your debts, some of your creditors may consider suing you to secure their money. However, if you file for bankruptcy, you will stop them in their tracks. The automatic stay will also prevent your creditors from pursuing other legal actions to seek payment of their debts. In addition, it will eliminate other debt collection measures, such as wage garnishments.
Wipe out most of your debts
The reason most people file for bankruptcy is to get rid of most of their debts. Not surprisingly, bankruptcy is an excellent alternative for getting a fresh financial start. Although not all debts can be eliminated through bankruptcy, you will be able to discharge most of them, such as personal loans, credit card debt, medical bills, and other types of unsecured debts.
You might get to keep all your assets
Some people think that filing for bankruptcy means you will have to sell all your assets to pay off your debts. Fortunately, that is not the case. Actually, if you file for Chapter 7 bankruptcy, in theory, you may have to sell your non-exempt assets to pay your creditors. However, most bankruptcy filings are classified as “no-asset cases,” meaning that filers don’t own any non-exempt assets, so their debts are discharged without selling anything at all.
On the other hand, if you file for Chapter 13 bankruptcy, you will have to make a 3-to-5-year repayment plan to get rid of your debts. As long as you comply with the plan, you won’t have to sell any of your possessions.
You should consult with a reputable bankruptcy lawyer to determine the best course of action for your case.
You’ll have a chance to rebuild your finances
Perhaps the most significant benefit of bankruptcy is that it will give you a second chance. After you get your discharge, you will be able to rebuild your finances from scratch. You’ll have to learn to live on a budget and take good care of your finances from now on. Chances are, you will learn the correct way to deal with your debts and never have to deal with a similar situation again.
Downs of filing for bankruptcy
If you decide to file for bankruptcy to get rid of your debts, you should be aware of certain negative things about it.
It won’t eliminate all debts
Don’t expect bankruptcy to be some kind of magic solution to eliminate all of your debts. There are certain debts that bankruptcy cannot discharge. For example, student loans, child support, alimony, and many more. Moreover, if you owe money on a secured asset, you may get rid of the debt, but you will also lose the asset. For instance, if you owe money on your car and file for Chapter 7 bankruptcy, you won’t have to keep paying for it, but you won’t get to keep it either. If you want to retain any secured assets, you should consider filing for Chapter 13 bankruptcy instead.
It will impact your credit
Another thing to keep in mind about bankruptcy is that it will significantly hurt your credit score. It will stay there for about 7 to 10 years, depending on the type of bankruptcy you filed. It will be challenging to obtain loans, credit, or mortgages during this type, but it won’t be impossible. In fact, you can start rebuilding your credit right after filing bankruptcy, so you should get back on track sooner rather than later.
You’ll lose all your credit cards
It goes without saying that after filing for bankruptcy, you will lose all your credit cards immediately. If you are used to buying things on credit, you may need to rethink the way you handle your finances from now on.
Some of your assets may be sold
Although it is very likely that you will not have to sell anything during your bankruptcy filing, this may not be the case. Suppose you own assets that qualify as non-exempt, such as expensive jewelry, fancy clothes, lots of cars, a vacation home, coin or stamp collections, costly musical instruments, or other luxury items. In that case, you may have to sell them to pay your creditors.
Work with a reliable bankruptcy attorney near you
Now that you know the advantages and disadvantages of bankruptcy, you may feel ready to begin the process or evaluate other options. However, you should still consider contacting a bankruptcy attorney near you for a free consultation. The attorney will analyze your financial situation and advise you on how to free yourself from debt successfully.