When facing overwhelming debt, knowing what to do and how to handle it can be challenging. Bankruptcy is a powerful tool that can provide relief from debt, but it also comes with some risks and drawbacks. In this blog post, we’ll discuss the advantages and disadvantages of bankruptcy so that you can decide if it’s the right course of action for you.
What to Know About Bankruptcy
Bankruptcy is a legal case filed with the courts that allows an individual or business to clear or resolve their debts. Bankruptcy is generally a last resort since it can have long-lasting and far-reaching implications. There are several types of bankruptcy in the United States, including Chapter 7, Chapter 11, and Chapter 13. The most common type of bankruptcy is Chapter 7, which allows individuals to liquidate their assets to pay off their creditors and eliminate their debt. Alternatively, Chapter 11 and Chapter 13 bankruptcies are used when individuals or businesses want to reorganize their debts and create a payment plan to repay them over time. All bankruptcies involve a lot of paperwork and require an attorney’s assistance to ensure all necessary documents are filed correctly with the courts.
Advantages of Bankruptcy
Knowing the advantages of filing for bankruptcy can help you make an informed decision about whether filing for bankruptcy is the right choice for your financial situation. Some of the benefits of bankruptcy include:
- Bankruptcy stops creditors from contacting you: When you file for bankruptcy, an automatic stay is issued that protects you from creditors attempting to collect your debt.
- Bankruptcy stops wage garnishments and bank levies: Your employer and banks can no longer take money out of your accounts to pay creditors.
- Bankruptcy might wipe out unsecured debt: Unsecured debts such as medical bills, credit card debt, and personal loans can be discharged through bankruptcy.
- Bankruptcy helps you keep your home: If you are behind on your mortgage payments, filing for bankruptcy can help you catch up on payments and keep your home.
Disadvantages of Bankruptcy
Filing for bankruptcy can provide debt relief but has several drawbacks. Considering all the implications of bankruptcy before deciding if it’s the right choice for you is important. Here are a few of the disadvantages of filing for bankruptcy:
- Bankruptcy can damage your credit: Bankruptcy will stay on your credit report for up to 10 years and can significantly lower your credit score. This makes it harder to get approved for new lines of credit and make purchases on credit.
- Bankruptcy can impact employment: Many employers consider a person’s credit history when making hiring decisions, so filing for bankruptcy can hurt your chances of getting a job.
- Bankruptcy can result in a loss of assets: In some cases, filing for bankruptcy may require you to surrender certain assets of value to pay off creditors.
- Bankruptcy may provide limited relief: Depending on the type of debt you have, filing for bankruptcy may provide little relief. Student loans, child support obligations, and other types of debt are typically not discharged in bankruptcy proceedings.
Debt Legal Defense is a San Antonio, Texas law firm offering clients protection against debt collectors. The firm often represents clients struggling due to medical debt.