The Benefits and Drawbacks to Filing Bankruptcy

Every financial situation has a couple of benefits and drawbacks. You could call them disadvantages if you like but that’s not really what they are called “downsides”. In fact, the reality is that these particular disadvantages actually add a plus to the advantages of filing bankruptcy. In this article, I will talk about some of the benefits of filing bankruptcy. And I will also provide you with some ideas on how to accomplish this task successfully if you do decide that filing bankruptcy is your path to financial freedom.

  1. Automatic Stay

One of the most obvious plus points of filing bankruptcy is the automatic stay. You now know that your creditors can no longer hassle you with threatening letters and phone calls about your past-due debt. This automatic stay goes into effect the moment that you file the court petition for bankruptcy and can be used to stop foreclosure, lawsuits, judgments, and wage garnishments. This automatic stay on your bankruptcy filing will also stop disability monitoring programs or similar plans and essentially preserve your right to live your life normally.

  1. Leaving You Without Any Foreclosure

Did you know that the second of the three benefits to filing bankruptcy is that the automatic stay goes into effect the moment you file? This means that if you are facing foreclosure you will be immediately protected from creditors and collection agencies. This does not mean that your bankruptcy will be dismissed if you are paying back a loan but rather that in most cases you will be able to re-establish a plan to avoid foreclosure with your bankruptcy attorney. Just so you know, in modern times about 6% of bankruptcy filings include a foreclosure, so this protection is vital. If the worst happens and you are facing foreclosure this can give you the breathing room you need to get back on your feet.

  1. A Chance to Live Within Your Means

jump-starting your financial life again by filing bankruptcy can be very difficult. The new bankruptcy statutes have made it harder, but borrowers in most cases still need a little bit of help getting started. When you are considering filing bankruptcy with your lawyer, there is really no harm in making a partial payment on the arrears if that can help you get your financial affairs in order regardless of what the situation is. This is a good time to sit down with your financial planner and together you can come up with a new budget that doesn’t involve extravagant spending.

Four More Reasons For Filing Bankruptcy

  1. Eliminate Liens – Foreclosures are constantly being raised on personal property and other assets owned by the debtor. Once a loan has been taken out on property or asset the mortgage balance must be paid in full. When a loan is purchased the loan payments are a little more affordable because of the lower interest rate but the payments still have to be made. When a borrower files a bankruptcy petition the automatic stay goes into effect and the mortgage may be discharged in full thus eliminating any further liability related to the debt.
  2. Keep The Energy On – I can not even begin to tell you how many people I have seen in trouble with the electric bill lately. So if you file a chapter 7 bankruptcy and have unsecured debts such as credit cards, medical bills, etc the bill can be completely eliminated. The only payment that is required is that is required by the courts to send out a letter to the respective utility companies letting them know what is going on. It may sound extreme but sometimes these utility companies have some leniency and will let you pay something rather than nothing at all.
  3. More Control Over Your Life – Most people in the US benefit from some degree of consumer protection under the law. This protection does not go into effect until the litigant is granted discharge but recently as a result of the bankruptcy reform act many people have been able to get a discharge of all their debts and have some say in how the debt is structured. For the average person in a hurry who has a little too much debt, chapter 7 bankruptcy would be the best solution.
  4. It Helps You Live Life normal – Sometimes life just gets uglier when you are starting to default on payments and get harassing phone calls from creditors. Bankruptcy will help to restructure your life, strip away the mortar of debt, and give you some breathing room that you can begin to rebuild your credit after a situation like this.

With that said, I think it is clear that the benefits do far outweigh the drawback. Keeping in mind the criteria of a chapter 7 bankruptcy would require that you have no more than $250,000 of unsecured debt. You put a little aside each month for a period of 3-5 years paying two or three thousand dollars each month. Once you have completed your repayment plan then you can call the creditors to spell out the terms of your debt-free agreement and that they agree to report it to the credit bureaus.