The Pros And Cons Of Bankruptcy

Are You Considering Bankruptcy?

istock_000005894130xsmallDid you know that going through bankruptcy to clear your debts away can be one of the most hardest to get?  If you have ever been through this situation you know what I’m talking about, and that’s not even the worst of it.

Once you get through bankruptcy it starts a whole new battle.  From the date of your discharge it usually will take up to 10 years to get that off of your record.

So it should be said bankruptcy is not a one time thing, rather it’s a life changing situation that can come to haunt you for the rest of your life.

Now if that hasn’t scared you away yet then maybe you’ll want to consider the advantages and disadvantages I’ve laid out below.

Advantages

1.  Protects some assets.  With bankruptcy you can save some of your assets.  However only if the asset is exempt will it stay untouched.  It will also vary according to whether you have filed a Chapter 7 or Chapter 13.

Chapter 7 involves liquidating all assets that are not exempt.  Things that can be me made exempt include house holds items needed on a daily basis, things you may need for your job, and your vehicle.

Chapter 13 bankruptcy is the preferred route because it is considered a less pressured structure.  This allows people to make partial discharges on some of the debt and also lets the individual make  monthly payments on the rest.

 

2.  Under Chapter 7 you start over debt free.  Yes the debt and misery are gone.  However I must inform you that this is the toughest route to go and is not for the faint of heart.  In fact I urge most people not to go this route unless it is the only option left that you haven’t tried.

In most cases you can avoid bankruptcy all together.  I urge anyone reading this article do not pick bankruptcy because it sounds like the easy way to get debt free, because it’s not.

 

Disadvantages

1.  New laws for bankruptcy.  The laws have changed and it is now much harder to discharge debt.  In order to do a Chapter 7 bankruptcy an individual must pass what is called a means test.  This test is the only way to qualify.

 

2.  Damages your credit.  As one of the most severe ways to damage your credit it will take up to 10 years to get off your credit report.  This means it will be nearly impossible to get a loan of any kind.  Not to mention destroy your credit score.

 

3.  Affects your business.  If you own a business it will destroy almost any possibilities of you getting any business loans, if you haven’t already lost your business.

 

4.  Affects your reputation.  Bankruptcy is not usually a personal event.  It tends to be public knowledge.  Sometimes listed in news papers and even on the internet.  This can have a lot of negative implications.  Especially if your are trying to get a new job, or run for public office.

 

 My Final Thoughts…

If you are considering this option take some time to think about these advantages and disadvantages.  You also may want to talk to a lawyer about this option as well.  As you can tell the disadvantages heavily outweigh the advantages here, so don’t take this decision lightly.

One word of advice though, don’t let lawyers tell you bankruptcy is the only way to solve your problem.  Just because he’s a lawyer doesn’t mean he is always right.  Get a few opinions on what you are trying to do.  Try talking to family, friends, or even a financial planner.

I once knew an individual that was going through bankruptcy and it didn’t matter what I told her the lawyer had her convinced bankruptcy was the only way out.  Don’t fall into this trap.

Finally, have you ever been through bankruptcy or even think about it?  What is your take on it?  Did it help you or did it hurt you?  Do you think people should or should not go through bankruptcy?

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