What Are The Downsides And Advantages Of Filing For Bankruptcy?

Bankruptcy is a decision that one has to make to get rid of or repay some of your debts under court supervision. It can assist you to have a financial makeover if you are in deep trouble with your finances. However, bankruptcy also has its demerits because it affects your credit and financial status in many ways for several years. This article is on the advantages and disadvantages of filing for bankruptcy so that you can make a decision.

Disadvantages of Filing for Bankruptcy

However, there are several demerits that one should be aware of if ever he or she intends to file for bankruptcy. Some of the main downsides include.

• Another drawback you probably will experience after bankruptcy is reduced creditworthiness as it seriously affects your credit record and score. Your credit record will show bankruptcy for just seven to 10 years maximum. Getting loans, credit cards, mortgages, and other credit facilities might be greatly complicated by this. It also influences your interest rates. This causes everything to cost more.
  
• Loss of Assets: Once you file for bankruptcy, all of your assets are on sale to help pay off debt. Depending on the chapter, you could have to provide second houses, investments, real estate, and other valuables. Although there are exclusions for assets, one may find themselves losing assets along the process.
  
• Aspects of Taxes - From the standpoint of the IRS, any debt erased under the Bankruptcy Act is seen as taxable income. This might imply you have income tax obligations on all canceled debt. This might just make the problem much more complicated in terms of personal financial status during a difficult period.
  
• File bankruptcy and you are putting your financial issues under the court's control, so everyone may see this information. This implies that under bankruptcy protection one cannot make any significant financial choice without judicial clearance. This might make some individuals ashamed as it is seen as giving up control of their money.
  
• Legal Fees and Costs: This is a highly delicate topic as, while many choose bankruptcy as a means of long-term expense control, they might simultaneously pay exorbitant initial fees. Generally speaking, legal expenses, court fees, and trustee fees run between one thousand and three thousand dollars. Many filers would be better off paying some debt with the money instead of this.
  
• Regarding the effects of bankruptcy, the following stands: Problems getting new credit: As you well know, bankruptcy ruins your credit, therefore you will find it difficult to get new credit right following the bankruptcy declaration. Filers are seen by lenders as high risk, hence you can have problems with credit cards or loans. After bankruptcy, one should progressively rebuild the credit from nothing.
  
• Potential shame Filers of bankruptcy may feel bad about it. Fears of being seen as financially reckless for whatever money they have been given may cause them to avoid informing others. Some individuals so avoid filing, which merely aggravates most of the problems.
  

This paper seeks to discuss some of the benefits of filing for bankruptcy

Debt relief through bankruptcy enables consumers to exercise control over their debts and make a fresh financial beginning. Some advantages include:

• Stop Creditor Harassment – Filing bankruptcy immediately protects you from creditor’s collection efforts. This prevents creditors or debt collectors from contacting you or attempting to collect the debt. This allows filers to have an immediate reprieve and less anxiety.
• Eradicate Unsecured Debt – Bankruptcy can discharge many sorts of unsecured debts for example hospital bills, personal loans, payday loans as well as credit cards. This provides filers with an opportunity to start afresh and with a clean record from previous debts.
• Stop Foreclosure – People file for bankruptcy when they are about to lose their home through foreclosure or their car through repossession. This prevents such actions and in many cases enables people to retain homes and cars through the wiping of debts or the establishment of manageable payment plans.
• Discharge Tax and Medical Debt – Most of the bankruptcies are caused by tax or medical bills. Such types of debts can usually be paid off in full or in part in bankruptcy, thereby offering some respite. This liberates filers from large and unexpected costs that they can ill afford to pay.
• File Lawsuits – Filing for bankruptcy automatically halts all the current legal proceedings that are being conducted against you to recover debts. This means that the filers cannot be forced to repay the debt through wage garnishments arising from legal verdicts.
• Get Ready for New Credit – As a result of Bankruptcy, you have an opportunity to establish a new credit history and prove that you are capable of handling credits responsibly. Credit scores, therefore, can increase significantly in a few years if filers are careful with credit after bankruptcy.
• Debt Relief – Bankruptcy enables one to clear or address debt through installments provided by the court. This can assist in the reduction of financial stress and large amounts of debt which can cause depression, relationship problems, and poor health.
• Access New Credit Sooner – There are new credit products that some creditors are offering to people who have recently declared bankruptcy. The reason is that this provides faster access to the small and simple loans and credit cards that are required to restore credit.

In conclusion, bankruptcy may be advantageous but it also has its disadvantageous effects on your credit, assets, and financial position. Consider both equally consult with a lawyer in your state and research all your options regarding debt relief before deciding whether or not you should file for bankruptcy. But if applied correctly, it provides the stressed consumer with a new financial beginning that is crucial and essential.

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