Advantages & Disadvantages of Filing for Bankruptcy (When And When Not To File)
Unfortunately, there has been a longstanding (and unjustified) stigma associated with filing for bankruptcy.
When bad things happen to good people, bankruptcy makes it possible to start over. There are advantages to filing for bankruptcy including eliminating overwhelming debt, learn from any financial mistakes you may have made in the past, and set the stage for a more prosperous future.
We’ll explain the benefits of filing for bankruptcy when financial challenges become too much to handle.
The Advantages of Filing For Bankruptcy
- All Eligible Debts are Discharged
Once you fulfill the terms of your bankruptcy, you get a complete discharge from all eligible unsecured debts. This includes credit card bills, personal loans and lines of credit, medical debts, and more. If you filed for Chapter 13, you may have also been able to pay off secured debts like your mortgage or car loan under much more affordable terms.
- All Creditor Collection Actions Must Stop
The automatic stay is one of the biggest protections offered to consumers who file for bankruptcy. All collection calls and letters, wage garnishments, and even collection lawsuits must immediately stop. You no longer have to worry about answering your phone, losing a portion of your income from each paycheck, or struggling through a stressful and time-consuming court action.
- You Keep Exempt Property
One of the biggest reasons why people fear filing for bankruptcy is the thought that they will lose everything they own. While bankruptcy laws may have been more punitive in the past, today Michigan residents can use state or federal exemptions to protect personal property. Even if you file for Chapter 7, which requires you to surrender any nonexempt property to your trustee, you will likely find that most of your property can be protected by an exemption.
- You Get A Fresh Start
Imagine waking up and knowing that you no longer owe that five-figure credit card bill or that huge medical debt incurred because your insurance coverage fell short. You now have money you can put towards personal savings, your child’s college fund, or your first home- all because you overcome your misconceptions about personal bankruptcy and made the best move for you and your family.
The Disadvantages of Filing For Bankruptcy
In some cases, filing for bankruptcy can make matters worse. Generally, this is caused by choosing to file bankruptcy at a time that is not advantageous. Doing so can mean the difference between permanently losing or retaining assets.
- Credit Card Loss
Creditors can automatically cancel existing credit cards once bankruptcy has been filed. This often results with being offered applications for “unsecured” credit cards after filing, but this almost always comes with extremely high interest rates and unexpected annual fees.
- Lower Credit Score
Filing for bankruptcy remains on an individual’s credit report for years after filing. Depending on which state bankruptcy is filed, it can remain on a credit report for up to 10 years.
- Difficulties Securing Future Loans
Due to the impact bankruptcy has on credit score, options for future borrows are significantly limited, and loans become much harder to secure.
- Property Loss
Not all property and real estate is exempt. This means there is potential risk of property being seized, or being forced to sell in other cases.
- Denial of Tax Refund
In the event of filing for bankruptcy, some states may deny tax refunds.
Get Help From Our Attorney Team at Maxwell Dunn PLC
At Maxwell Dunn PLC, our bankruptcy attorneys maximize benefits and minimize risk to help provide an outcome that’s advantageous. Get help from an attorney, and contact us today.