Is your debt burden overwhelming you? Do you dread the thought of paying your bills, feeling financially pressured by those you owe? Are you considering filing for bankruptcy? Bankruptcy is often seen as something to avoid at all costs, but in many cases, it offers much-needed relief and provides an opportunity to start over.
In this article, we will outline eight advantages of filing for bankruptcy. We will discuss the main types of bankruptcy filings applicable to consumers, in addition to some advice on options to consider prior to filing bankruptcy.
Understanding Bankruptcy
Before we dive in to explore the benefits of filing bankruptcy, however, it would make sense to be clear on what bankruptcy is prior to discussing its benefits. Bankruptcy is a court-assisted process for debtors who are unable to pay their creditors. You are allowed to erase or repay your underlying debt under court protection. Essentially, you get a fresh financial start.
Common Misconceptions About Bankruptcy
There are a couple of prevailing myths surrounding bankruptcy that can dissuade individuals from exploring its use in reshaping their finances. They are as follows:
Myth #1: Perhaps one of the most pervasive myths is that bankruptcy is a reflection of personal failure. Bankruptcy is part of a nationwide system that allows you to re-start your financial life and move forward from a foundation of fairness and equality.
Myth #2: Another oft-repeated objection is that bankruptcy will permanently destroy your credit. If bankruptcy might harm your credit, it certainly does not leave a permanent stain on your credit report for the rest of your life. Although bankruptcy will have an impact on your credit, the truth is that it eventually disappears from your credit report, and with careful behavior, you can rebuild your credit.
Types of Bankruptcy, Chapters 7 and 13
There are two main categories of bankruptcy: Chapter 7 or a Chapter 13 bankruptcy.
Chapter 7 bankruptcy – Allows you to completely discharge your unsecured debts. All non-essential assets are liquidated and used to repay your creditors. For good reason, this type of bankruptcy is called a ‘liquidation’ bankruptcy.
Chapter 13 bankruptcy – Instead of wiping your debt out entirely, it allows you to pay creditors back through a payment plan lasting three to five years. Those with a steady income can qualify for a Chapter 13 payment plan to repay their debts.
Some Positive Aspects Of Bankruptcy
If you polled most people about their thoughts regarding bankruptcy, an overwhelming majority would likely frame it in a negative context, echoing the sentiments alluded to earlier in this article. Few would be able to identify the positive impact bankruptcy can have on people under extreme financial duress. If you are one of these people, read on to discover the better side of what bankruptcy has to offer. Here are eight benefits of bankruptcy you might not have previously considered:
1. Debt Relief
Perhaps the greatest benefit of declaring bankruptcy is the potential for debt relief. Filing for bankruptcy can effectively wipe the slate clean by wiping out some of your debt. Depending on your circumstances, you might be able to have a bankruptcy court wipe out your unsecured debt, including credit-card debts and medical expenses. These types of debt are said to be ‘fully dischargeable’, which means that you no longer owe any money to your creditors and have a financial reboot.
2. Stop Creditor Harassment.
Upon filing for bankruptcy, an automatic stay is imposed, which prohibits collection activity against you by creditors. Telephone calls, letters, and lawsuits against you must cease. Any garnishment of your wages must stop immediately. The automatic stay allows you peace of mind to ponder a course of action rather than having to worry about creditors calling you every day or money being drained from your bank account.
3. Time To Reorganize
Bankruptcy can also afford you breathing room in which you can rest and reorganize. Depending on the kind of bankruptcy you file for, a repayment plan may be formed in which you pay off your obligations by installments over the course of several years until you can get back on your feet. A bankruptcy attorney or a trustee can help you determine what kind of plan works for you.
4. Preventing Foreclosure Or Repossession
For someone facing foreclosure on their home or repossession of their vehicle, bankruptcy can be a lifesaver. Bankruptcy stops the foreclosure or repossession process, allowing you to save your home or vehicle. Bankruptcy may allow you to negotiate with your creditors to allow you to keep your home or vehicle. In addition to obtaining relief, you can keep a roof over your family’s heads and have a means to get to and from work.
5. Financial Education
Financial education classes are often required as part of many bankruptcy programs. These are intended to help people develop better money-management habits. Basic budgeting, insurance, savings strategies, and other topics covered in these courses teach students how to make smart financial decisions that they can use to make even wiser decisions in the future. If you can eliminate the mistakes that led you to bankruptcy in the first place, the hope is that you won’t need to file for bankruptcy in the future.
6. Emotional Relief
When you are constantly worried about your financial situation, it can negatively affect your mental and emotional health. Filing bankruptcy can easily give you relief, calmness, and the knowledge that, at last, you have done something to solve your financial problems. It takes off the pressure and stress that you have to go through being in debt and always struggling to pay back your debts. You can erase all that negativity and start a new chapter in your life, putting an end to all your financial burdens.
7. Future Credit Options
You may lose your credit score temporarily after filing bankruptcy, but by freeing yourself of your debts, you may be able to start over and do better next time. After your bankruptcy is discharged, you can begin to rebuild your credit by establishing a clean and positive payment history. proving that you can responsibly handle your finances. After declaring bankruptcy, many people discover that their debt-to-income ratio automatically improves due to the elimination of unsecured debt, making them eligible for new credit very quickly. You won’t likely get the best interest rates, but you’ll be able to rebuild your credit over time if you do it responsibly.
8. Legal Protection
Filing for bankruptcy offers you legal protection from creditors, enabling you to resolve your debts in a fair and just manner. As soon as you file, an automatic stay stops collection actions against you, making it safe for you to meet with your bankruptcy lawyer or trustee to negotiate with your creditors and settle your debts in a fresh and new way. It serves as a structure for legal resolution with regard to your unpaid debts, and you have the protection of the debtor’s rights provided under the law.
Is Bankruptcy Right For You?
Whether bankruptcy is right for you depends on your particular situation and set of circumstances. If you are swimming under mountains of debt, struggling to keep up with your payments, and are facing foreclosure or repossession, bankruptcy may be the best option for you. While the decision to file for bankruptcy shouldn’t be taken lightly, it’s important to understand the many benefits that bankruptcy can offer.
If you are considering bankruptcy, be sure to consult with a qualified bankruptcy attorney who can help you make the right choice for your financial situation. At Ted Machi & Associates, P.C., we have been helping our clients make informed decisions about bankruptcy for over 30 years. Feel free to contact our team to schedule a free consultation so we can answer any questions you may have and help you get the financial relief you’ve been searching for. Call us today so you can sleep well tonight!