pros and cons of filing bankruptcy

Pros and Cons of Filing Bankruptcy – What You Need to Know Before Making a Choice

Filing for bankruptcy is never an easy thing to handle and can be the cause of stress for years to come. When Chapter 7 bankruptcy is filed, you can expect it to be displayed on your record for the next 10 years before the courts wipe the debt clean. Certain debts remain, such as child support, student loans, and most tax debts.

People often overspend on their credit cards and create unnecessary debt that could gather high interest rates as the years go by.

There are many individuals and corporations that make use of it to start an important business or resolve their financial crisis. It might just be what you need to get that fresh start and get out of the terrible financial situation that you are experiencing.

Should You Consider Filing Chapter 7 Bankruptcy?

Sometimes it is best to start with a clean slate and a manageable repayment plan so that you can get your life back on track. You should consider filing Chapter 7 bankruptcy if your current situation could benefit from it. If you are struggling to feel confident about going bankrupt, it would be best to read the reasoning behind filing for bankruptcy.

Today we discuss the pros and cons if you file for bankruptcy and explain the different kinds of bankruptcy that can be filed.

What is Bankruptcy?

When a company is in legal debt and wants to start on a clean slate, bankruptcy can be used as a legal action to make up for some of those repayments. It is a means of protection for unsecured creditors because they share a part of what can be contributed by debtors.

Each loan or credit card has an existing balance that helps to repay the balance partly or in full. It does this by reducing the monthly repayments under strict regulation and supervision of the courts.

This protects creditors and lenders from both debtors, creditors, or other creditor’s shares. There are pros and cons to filing bankruptcy and rebuilding your credit, so be up to speed with the latest information in your state.

Filing for Bankruptcy

Even though your credit cards are blocked when filing for bankruptcy (which is probably a good thing), you might still consider finding a way out of debt. The pros and cons need to be looked at, so you can be knowledgeable of the proceeding and the potential outcome of your situation.

Whether you choose Chapter 7 or Chapter 13 bankruptcy filings, your credit report is going to take a knock. Once you have filed for bankruptcy there is no going back, but you are able to rebuild your credit score up again. You can even take on more debt from providers willing to accept people that are in credit counseling. This route is not recommended and could make your financial situation worse than it was when you began.

It is a good idea to clear as much debt as possible to be able to keep free from financial stress. There are many articles that can teach you about personal finance and may be able to help you improve your situation.

So, before you decide on filing Chapter 7 or Chapter 13 bankruptcy, give the below information a read, so you can learn how you can find relief from debt collection services for a while.

The Pros of Chapter 7 Bankruptcy

In the last year, bankruptcy has risen over 60%. The pandemic ravaged the world causing loss of business and jobs around the world. When you file for bankruptcy with the courts, you protect yourself and your remaining assets. Debt collectors, creditors, and money lenders are not able to contact you with regard to any cash you might own.

Your vehicle or home might even be exempt from all losses or penalties that could occur. When you file a Chapter 7, you may still have access to more money than you thought was possible. You are no longer going to be burdened with debts that you are unable to repay.

If you have pending debt that has not been paid in a year or two, you are better off not paying it. It is going to damage your credit score even more, so the best choice would be to chat with a financial advisor.

Remember, when filing Chapter 7 bankruptcy, judges might potentially liquidate assets to help recover some of your debt.

The Advantage of Chapter 7 Bankruptcy

The entire process of filing Chapter 7 takes anywhere from three to six months. Most states exclude most items that you own from your bankruptcy claim, so this gives you a chance to keep some assets while getting back on your feet.

When wages or salaries are proportionately paid back by you, you may be entitled to keep that part of the payment once Chapter 7 is filed. You cannot file for bankruptcy if there is a previously pending Chapter 13 or Chapter 7 that was dismissed in the last 180 days.

You won’t be completely free from all loans like your student debt or other unsecured debts, but you are safe from secured creditor payments. Loans from secured creditors could be held back to give you enough chance to increase your income. When your income has improved, a repayment arrangement needs to be made with those creditors so you can sort out your debts.

Cons of Chapter 7 Bankruptcy

Your credit report could remain affected for at least 20 years once you file for bankruptcy. Once every eight years, you can go bankrupt. Insolvency can be recovered, so be sure not to stress to much about that.

For people who have ongoing financial issues, a Chapter 13 bankruptcy order may need to be put in place. It can be both embarrassing and intimidating for anyone who is currently in this sort of financial predicament.

Expect to be in court if the creditor disputes your discharge or if there is any other questioning that might need to happen. Any property or purchase from the creditor also needs to be returned and a settlement amount must be agreed on.

The law states if you are unable to make payment to creditors, your assests or property might be sold to cover the personal debt. This could leave you in a sticky situation if you have made use of any creditor that requires security.

Again a good attorney-client relationship is going to put you one step ahead so that when you file for bankruptcy you are protected on all fronts. These are some of the cons of Chapter 7, so please take them into consideration when deciding to file bankruptcy.

Only file Chapter 7 bankruptcy if the bank wants to foreclose your home or repossess your car. These situations are ones that need to be handled with care, and a trustee must be informed of all lawful requirements.

Disadvantages of Chapter 7 Bankruptcy

It imposes a time frame that prevents debt collecting authorities from visiting you more than eight times. This protects creditors from borrowers who have recently exited Chapter 7 by not giving them the chance to repeat the process again.

There are mixed results in this field of research so let’s explore more to find out more facts regarding the disadvantages of Chapter 7 bankruptcy.

A third of consumers filing for bankruptcy have received new lines of credit within the last decade. When you get new credit it may reflect your previous bankruptcy record. The card you get after bankruptcy is going to offer you a rate of 20 percent at the least.

How Do I File for Bankruptcy?

After strong efforts have been made to repay any debt, but you are struggling to stay afloat due to financial constraints, sometimes there is no other way other than filing for bankruptcy to protect yourself and your remaining assets.

If someone files bankruptcy, their company can put in a petition that is managed by the federal bankruptcy court. Additional information needs to be provided which includes the debtor’s assets and financial health, or any cost or losses they might incur. More often than not, debtors make use of an attorney who files information and prepares petitions for them.

In some cases, debtors represent themselves, but this route is not always recommended. Normally, it is filed seeking protection from the bankruptcy law of the United States.

Is it Necessary to Have a Bankruptcy Attorney?

The progress of filing for bankruptcy is a tedious one, which is why a bankruptcy attorney can help handle any issues. There are alternative methods that you can use to file for Chapter 7, and you can access these methods through some apps designed for filing Chapter 7 bankruptcy.

Chapter 13 is going to be a bit more complex, and a bankruptcy lawyer can help provide you with all the information you need regarding this. At the end of the day, there is no way to avoid a bankruptcy lawyer, although you can figure out what to do with all the online resources available out there.

Bankruptcy filings can take a lot of time so be prepared to be in it for the long run. You are liable for any bankruptcy court fees that come from any proceeds or dealings.

Automatic Stay

Once you file bankruptcy you eliminate the chances of getting kicked out of your residence before your bankruptcy discharge is complete. This helps you to get a fresh start and still be able to have a roof over your head.

With automatic stay, you can take care of other financial obligations before having to repay your debt. Things like personal loans can be put on hold, or payment arrangements need to be made with the courts. A bankruptcy trustee handles all of this and offers legal advice for any person that is eligible for filing bankruptcy.

Your credit score is going to be permanently affected once your bankruptcy has been filed, so take that into consideration when making your final decision.

The Pros of Chapter 13 Bankruptcy Filing

Chapter 13 bankruptcy filing says that the person in question creates a payment structure letting the court pay back the debt owed to the creditors. It is similar in many ways to the debt settlement process, so be aware of that and proceed with caution. Legal advice is the best thing you can do the circumvent the situation, as it allows you to be fully informed.

At the end of the day, the court decides whether extra charges need to be added and has the final say on the agreement contract.

The Cons of Chapter 13 Filing

The cons of filing Chapter 13 bankruptcy are something that is going to make you think twice about doing it.

The first thing to note is that attorney filing fees are going to be exceptionally higher than if you file for Chapter 7. Overall fees can range anywhere from $2000 to $5000 dollars and there is a chance that the bankruptcy trustee might deny your plea.

You also need to pay any unsecured debts from creditors you have dealt with in the process. These are debts from creditors that don’t take security when providing you with a personal loan or assets to add to your fleet.

Who Files for Bankruptcy?

A debtor who is struggling financially and needs a repayment plan to help settle their debts is someone who might file. It helps them secure themselves for three to five years while having a clean slate to regain control of their future and credit report. They can build a new credit rating while paying the interest rates of their previous financial commitments.

There are some people who might need up to 10 years to sort out their personal situation and for that debtor, it is a good idea to look at being discharged at a later stage. It gives you some free time to arrange a plan to pay off a large loan or provides relief of rent.

All of these factors are determined by the income to debt ratio which your attorney is going to help you figure out.

You Won’t be Free From All Debts

Filing bankruptcy doesn’t automatically mean you don’t have to pay your student loan or similar debts; far from it actually. It just means that other arrangements need to be made to pay your federal debt so that your credit score can grow again.

Depending on which section you file, debt could be recovered by selling your assets or property. This is normally the case when filing Chapter 7 bankruptcy. The creditor sells your assets so that you can be almost debt-free.

The law allows for the collection of your debt through terms set out when you file Chapter 7.

Child support is a liability that is never going to disappear, so make sure that you take care of that umbilically to stay on the right side of the law. Although filing bankruptcy might give you a fresh start you are still going to have to rebuild your credit over the next few years.

No Further Legal Action Until Discharged

If your income is unstable, and you need to pay loans, that is where Chapter 7 comes in to give you relief until payments can be made. The cons of filing could creep up on you if any debts were incurred illegally or if the courts find any reason to not provide relief.

It is a catch 22 situation that cannot go without a bankruptcy lawyer to guide you down the path. If you cannot afford professional help, the state might appoint assistance for you.

Final Thoughts

In these trying times, it could be difficult to make creditor payments if your income is not high enough. You might need relief from loans or other financial burdens that plague your income. A credit card is a large cause of financial difficulty, so you must remember to remove all credit card options from your expenses when filing for bankruptcy.

Being in debt is challenging and that’s why many people use the law to file for bankruptcy. Things like automatic stay only protect you for a short period while the debtor makes arrangements to pay a loan or property.

It is a risky thing to take out personal loans and because there is no security you must pay it back to the lender. The relief period is shorter and the company might demand payment from your income, which could come off in enormous amounts.

A debtor can be aided with the help of a lawyer who is versed in the cons of filing bankruptcy. They can advise you on how to repair your credit score and redeem your debt on your credit cards. Don’t file for bankruptcy without speaking to one first, as you can put yourself and your property at risk.

The law works with a debtor if you know how to take the advantages that are available. File bankruptcy so that loans can be paid off efficiently with the income that you have available.

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