Filing for bankruptcy is never something to take lightly. However, in the right circumstances, it can be the best course of action. It could mean the difference between keeping and losing your home.
Before you decide whether or not filing for bankruptcy makes financial sense for you, it pays to understand the potential drawbacks associated with making the declaration. These are five pros and cons associated with bankruptcy declarations to help you make an informed decision.
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One of the benefits of filing for bankruptcy is that it can delay foreclosure and repossession proceedings. State exemptions dictate that many of your assets, including your car and property cannot be seized in lieu of debt.
Filing for bankruptcy will also offer some relief of your financial obligations. Not every debt can be relieved through filing, but many can.
#3 No More Calls and Letters
When you file for bankruptcy, it initiates what is known as an ‘automatic stay’. This means that creditors, debt collectors, and lenders cannot contact you and continue to pester you for payments.
#4 You Can Regroup
Without collectors harassing you and the impending possibility of having your car repossessed or your house foreclosed, you can breathe, regroup, and make a solid financial plan moving forward.
#5 It isn’t a Financial Death Sentence
You often hear rumors that once you file for bankruptcy, you will never be able to access a line of credit or mortgage again. This simply isn’t true. You will likely receive approval for a credit card three to five years later. There are also mortgage lenders who specialize in lending to borrowers who have been through a bankruptcy.
#1 It Will Damage Your Credit Score
There is no way around this. Your credit score will suffer from declaring bankruptcy. A bankruptcy will remain on your credit report for up to ten years. This means creditors and lenders will see it on credit applications.
#2 You Will Lose Your Credit Cards
When you file for bankruptcy, you usually lose all access to existing credit in the form of credit cards. Be prepared for this and make arrangements if necessary.
#3 You May Lose Luxury Possessions
While you will likely get to keep your property and vehicle thanks to exemptions, you may lose luxury items you possess. If you have any additional properties that do not fall under the exemption protections, you could lose this as well.
#4 You Can’t File Again for At Least Six Years
You can only file for Chapter 7 Bankruptcy once every six years. This means if your financial situation worsens in the six years following your bankruptcy declaration, you may have limited options for recourse.
#5 It Won’t Relieve You of All Your Debts
Some debts cannot be relieved by filing for bankruptcy. Alimony payments, student loan debts and child support cannot be waivered with a bankruptcy filing. Only a family court can suspend or amend child support and alimony payments.
Are you thinking about bankruptcy?