Pros and Cons of Filing Personal Bankruptcy

Anyone reading this article is likely drowning in debt and researching solutions available. Bankruptcy is a term that most people associate with failure, “giving up” or just something used by deadbeats that don’t want to repay their financial obligations. The reality couldn’t be further from the truth.

Bankruptcy laws were enacted for honest debtors who, through economic, personal, health or employment reasons, have become unable to keep up with their debt and need real, legal solutions to help.

While the bankruptcy court can provide solutions that no other debt relief program can match, it does have it’s drawbacks. Here are some of the basic pros and cons of filing for bankruptcy protection.

Pros of Personal Bankruptcy

Bankruptcy is the only legal mechanism for eliminating unsecured debts, relieving debtors of liability for repayment of creditor claims, and protection from liens, lawsuits and any other attempts by creditors to get repayment.

Here are the main benefits of using bankruptcy protection to relieve unmanageable debt:

• It’s Fast. A typical chapter 7 bankruptcy case can be completed in about two months.
• Credit Card Debt is Erased. For debtors with a large amount of credit card debt, bankruptcy will usually eliminate all of it permanently.
• Medical Bills are Discharged. More than half of bankruptcy petitioners say that medical bills were part of the reason they filed. Medical debt is erased in a bankruptcy case.
• You Keep Most (If Not All) of Your Property. Contrary to popular misconception, the vast majority of bankruptcy petitioners will lose very little, if any, of their property and other assets. The bankruptcy laws have exemptions that protect much of the valuable property, and the rest is likely to be “abandoned” by the bankruptcy trustee.
• Bankruptcy Can Stop Foreclosure. For homeowners facing a foreclosure, a bankruptcy petition can stop the foreclosure process and buy them time to get back into financial shape and catch up on past due payments.

This is just a small sample of the power of bankruptcy protection. There are a wide array of options that bankruptcy can provide, and it’s all covered on this site. 

Cons of Bankruptcy

The main downside of filing for personal bankruptcy is the impact on your credit score. Bankruptcy will have a significant negative impact on your credit report, and it can take 6 months or more to begin cleaning up your credit and rebuilding your score.

This is a difficult pill to swallow, because it makes getting loans at a reasonable interest rate difficult. However, if you are in a situation where you are becoming more and more indebted and unable to maintain all your monthly bills, then your credit will probably decline over a few months, so it’s a difficult choice to make.

If you file for bankruptcy now, you can begin rebuilding your credit immediately, as opposed to years of trying to balance bills in a never ending cycle.

Get Professional Legal Advice

If you are considering bankruptcy, and trying to weigh your options, get a consultation with a bankruptcy lawyer to find out if bankruptcy is the right choice for your situation. Many attorneys can also offer debt settlement services for people who would be better served by that option, so you can get some options for financial help.