The Pros and Cons of Filing for Bankruptcy

A set of scales, a piggy bank, a gavel, and a model home sit in front of a man in a blue suit.

If you’re considering filing for bankruptcy, it’s important to understand the potential long-term implications and the various avenues available. Bankruptcy can be a useful tool in eliminating your debts and giving yourself a clean financial slate. However, it also could potentially damage your credit score or have other far-reaching consequences. This blog post will take an in-depth look into both the pros and cons of filing for bankruptcy so that you can make an informed decision about whether or not filing with Rulon T. Burton is the right choice for you, your family, or business.

Different Types of Bankruptcy

Bankruptcy is a legal process designed to aid individuals and businesses that simply cannot meet their financial obligations. In a nutshell, it is a court-supervised process that helps reduce and eliminate debt.

You might be surprised to know that there are different types of bankruptcy, and each is designed to address specific financial situations. These include Chapter 7, Chapter 13, and Chapter 11 bankruptcy.

  • Chapter 7 Bankruptcy

This is the most common type of bankruptcy and aims to erase unsecured debts like credit card balances and medical bills.

  • Chapter 13 Bankruptcy

This filing allows individuals with a steady income to pay a portion off their obligations over time.

  • Chapter 11 Bankruptcy

Chapter 11 is geared toward businesses in financial crisis. If you find yourself in a position where you cannot pay your debts as they come due, bankruptcy is an option you may want to consider.

Pros of Filing Bankruptcy

Filing for bankruptcy can seem like a scary and overwhelming decision, but there are many benefits to doing so. For one, it can provide much-needed relief from overwhelming debt and a fresh start to your financial situation. Additionally, bankruptcy can stop creditor harassment and give you a chance to catch up on missed payments. It can also prevent wage garnishment and even foreclosure on your home.

While it is true that bankruptcy can have negative effects on your credit score, the ability to start over and gradually rebuild your credit can ultimately lead to a better financial future. Overall, while filing for bankruptcy is not the right choice for everyone, it can provide significant benefits for those who are struggling with debt.

Debt Relief

One of the primary advantages of filing for bankruptcy is the relief it can provide from debt. After declaring bankruptcy, creditors are no longer able to collect on debts owed, meaning that individuals have the opportunity to start fresh and rebuild their financial future. For those who are feeling overwhelmed by the burden of mounting debt, the possibility of debt relief can offer a glimmer of hope and a chance to regain control of their finances.

Repayment Plans

One of the biggest pros of filing bankruptcy is the ability to establish a repayment plan for your debts. A repayment plan helps you to budget for your payments in a way that fits your lifestyle and income, rather than getting hit with unexpectedly high bills month after month. For many people, this alone can be enough to make a huge difference in their lives. By having a structured and reasonable plan, they can finally start making progress toward eliminating their debts and restoring their financial stability. In many cases your debt balances are substantially reduced to make the payment very affordable.

Ceasing Creditor Harassment

When you file for bankruptcy, the court allows an automatic stay to be placed on your debts, which prevents creditors from contacting you or collecting payment. This can provide some much-needed relief to those who have been struggling with harassing calls and letters from creditors. The automatic stay can also give you time to catch up on missed payments and work towards rebuilding your financial situation.

Asset Retention

If you don’t file a liquidation bankruptcy (Chapter 7), you have the potential to retain some of your assets. If there isn’t enough value in your possessions, such as your house or vehicles, they won’t be sold to repay your debts.

Bankruptcy also provides financial and credit counseling so you can learn how to better manage your money in the future, hopefully avoiding debt problems in the years to come.

Cons of Filing Bankruptcy

While the idea of debt relief is enticing, there are some cons to filing bankruptcy. Firstly, it can negatively impact your credit score and hinder future financial opportunities. Additionally, some types of debt, including student loans and taxes, are typically not eligible for discharge through bankruptcy. It is essential to weigh the pros and cons before deciding on filing for bankruptcy.

Negative Impact on Credit Score

While bankruptcy may seem like a quick solution to an overwhelming financial burden, it’s important to consider the long-term effects. A drop in credit score can make it harder to obtain loans, credit cards, or even rent an apartment. It can also result in higher interest rates, making it more difficult to pay off previous debts. It’s crucial to weigh the pros and cons of filing for bankruptcy before making any decisions. However most people who file for bankruptcy already have a low credit score and find that their credit score rebounds up to a 100 points in one year after filing.

Limited Access to Credit Cards & Loans

Filing for bankruptcy is a tough decision to make, especially when you consider the consequences. One major downside is the limited access to credit cards and loans. This can make rebuilding your financial situation much more difficult, especially if you need to make big purchases or take out loans to pay for emergencies. While bankruptcy can provide relief from overwhelming debt, it’s important to carefully consider the long-term effects on your credit score and financial flexibility.

Difficulties in Obtaining Employment

It is important to note that very few jobs find a bankruptcy worse than having unresolved debt problems.  In fact resolving your debt through bankruptcy makes you a lower risk as an employee. Bankruptcy can raise red flags for potential employers who may interpret your past financial troubles as a lack of responsibility and accountability, but typically in industries where you are working with money. Even though bankruptcy is a legal and legitimate way to restructure debts and start anew, it can still carry a negative stigma. This can make it difficult for job seekers to overcome the prejudices of potential employers and prove themselves worthy of a job. However, it’s important to note that bankruptcy should not define one’s identity or abilities, and with patience and perseverance, it is possible to find employment even after filing for bankruptcy.

Difficulties Renting

If you’re currently in bankruptcy or have one on your credit report, it can be difficult to secure a rental property. Property management companies and landlords want to see prospective tenants with a strong financial history so they’re taking on less risk renting. It is legal to refuse to rent to someone who has a prior bankruptcy, so consider that carefully if you ever plan to rent a place to live. However we find that the biggest hurdle to renting is if you have been previously evicted.

Generally those who have not been evicted are able to find places to rent despite the bankruptcy filing.  Even those who have prior evictions have been able to find places to rent with sufficient deposits, or working with smaller rental properties.

Steps for Filing Bankruptcy

Gather Documents, Speak with an Attorney, File Forms, and Attend Court Hearings

When you have a reputable bankruptcy attorney on your side, the steps for filing are laid out for you.

  1. The first step is to gather all of the necessary documents, such as your income statements and debts.
  1. Next, it’s crucial to speak with an experienced attorney who can guide you through the process and ensure that you’re making the best decisions for your situation.
  1. From there, the attorney will file the necessary forms with the court system and both of you will attend any virtual hearings required.
  1. You’ll be required to fulfill obligations as outlined by the court.
  1. At the predetermined time, the bankruptcy is discharged and debt is eliminated.

With the right support and resources, filing for bankruptcy can become a manageable process that helps you get back on track financially.

Alternatives to Filing for Bankruptcy

Debt Negotiation & Settlement, Debt Consolidation Loan, Debt Management Plan, etc.  Tips for Preventing Future Bankruptcy Filing

We all know that filing for bankruptcy is not an easy decision. It can impact not only your financial standing but also your credit score for a long time. However, there are alternatives to filing bankruptcy that in some cases can help you get back on track with your finances.

Debt negotiation and settlement, debt consolidation loans, and debt management plans are just a few examples. We recommend talking to us before signing up for one of those options, just so you know how they compare to bankruptcy. 

Tips To Avoid Bankruptcy

Now you know what to do when filing for bankruptcy, but what about preventing future bankruptcy filing altogether? Here are some tips to help you avoid such a situation in the first place:

  • First, create a budget and stick to it. Be honest about your income and expenses, and track your spending so you can identify areas where you might be overspending.
  • Second, build an emergency fund to cover unexpected expenses, like car repairs or medical bills.
  • Third, avoid taking on too much debt, especially if you don’t have the means to pay it back.

With these tips, you can avoid the need for bankruptcy filing in the first place and stay on track with your financial goals.

Bankruptcy is a complex subject and it’s important to research all the options available when considering whether bankruptcy is right for you. Everyone’s financial situation is different, so be sure to talk with an attorney before deciding on any course of action to determine what might be best for you.

Additionally, if you are considering filing bankruptcy, understanding all of the pros and cons associated and seeing if there are alternatives to filing can help you make an informed decision about your finances. Furthermore, taking steps like consulting with a credit counselor or budgeting wisely, can help prevent future bankruptcy filing in the future.

Ultimately, regardless of how difficult your financial situation may seem now, there are options available to help guide you back towards achieving financial wellness once more.

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