If you’re having some financial troubles and considering bankruptcy, there are a lot of things you need to take into consideration. Simply filing bankruptcy and then trying to start over can be a long, excruciating process — but it can be done. Try talking to each individual creditor in order to settle accounts, so you don’t have to go through bankruptcy. Most importantly, you should be aware of all of the pros and cons of bankruptcy before you take any action. Here is a short list of some of the pros and cons of filing for bankruptcy:
Pro – Instant Relief
One of the major benefits of filing for bankruptcy is the instant relief you get from not having to answer annoying phone calls from creditors. You undoubtedly know you owe the money, but you don’t have it or you would have already paid, so receiving call after call can become tedious. As soon as the court accepts your bankruptcy, the calls should stop as well as other attempts by creditors to collect. Any attempt to contact you should come through an attorney.
Con – Debt Is Still There
The downside to instant relief is that although the court now says your bankruptcy is valid, the debt remains. While it’s true the creditors must stop their collection calls, in many cases you will still have to go through certain procedures to actually eliminate the debt. In addition, you will lose all your credit cards, and you may have to part with some personal items that aren’t deemed to be essential to your survival, such as jewelry, artwork, a boat or a snowmobile.
Pro – Some Debt Goes Away
In some cases, filing for bankruptcy will make your debt simply go away. How much debt is eliminated will depend to a great extent on which form of bankruptcy you’ve filed. In some cases, it can be done away with completely, while other forms of bankruptcy require a partial debt settlement. With a Chapter 7 bankruptcy you can potentially get rid of a lot of your debt; while Chapter 13 requires a reorganization of debt.
Con – You May Have to Give Something Up
A major downside to filing for bankruptcy is the fact that although your debt may go away, you will most likely have to give up a great many of your personal possessions that aren’t necessary in order to live day-to-day. A Chapter 13 bankruptcy will not eliminate all debt; you will still be required to pay some of it.
Pro – Exemptions May Be Available
In most states, it’s possible that some of your property can be protected from creditors. Even if you file for bankruptcy under Chapter 7, you may be able to hang onto your car or home.
Con – No Mortgage for Years
Although you may be shielded from your home being taken away, it will most likely be years before you’ll be able to qualify for a mortgage. Usually having a bankruptcy in your background will require a long wait — up to 10 years — before you’ll be able to qualify for a low-interest home loan.
Pro – A Fresh Start
Filing for bankruptcy will allow you to start rebuilding your life now. The sooner you begin, the faster you’ll be able to resume the lifestyle you’re used to. The quicker you can reestablish a good credit rating, the sooner you’ll be able borrow money at lower interest rates.
Con – High Interest Rates
Recovering from a bankruptcy is possible, but you will have to pay for it. Most people who attempt to reestablish credit after a bankruptcy will try and take out a loan. By paying the loan back on time, according to whatever the terms are, their credit rating will go up. Unfortunately, loans of this type carry extremely high interest rates, which is the price you have to pay for filing bankruptcy.
Pro – You Can Rebuild Your Credit
You can begin to rebuild your credit rating after a bankruptcy by establishing and maintaining good credit. Although it will be difficult, if not impossible, to qualify for a credit card from one of the major credit card companies, there is a way you can do it. By approaching your bank or credit union and depositing a few hundred dollars in a secured account, you may be allowed to obtain a secured credit card. You will only be allowed a credit limit equal to the amount in the account, similar to a debit card, but unlike a debit card a secured credit card will help reestablish your credit.
Con – Rebuilding Credit Takes Time
Reestablishing a good credit rating is possible, but it will take a very long time to do it. Getting a secured credit card is a step in the right direction, but it will also prevent you from borrowing too much money at one time, or going too far in debt when you can’t afford it, which may be what got you in this situation in the first place.
These are just a few pros and cons of filing for bankruptcy. If you are thinking about filing for bankruptcy, please contact a qualified professional.