Filing for bankruptcy is often considered a last resort when someone has unmanageable debt. For many, bankruptcy is the best choice that can eliminate debt, finally stop harassment by creditors, and help build a stronger financial future. Wanting to know more about what are the advantages of filing bankruptcy? Here are your answers.
Advantages of Filing Bankruptcy
Triggers the Automatic Stay
As soon as you file for bankruptcy, the court will issue something called a stay against attempts to collect a debt. This means that all creditors to whom you owe dischargeable debts will be legally required to suspend any collection activity against you until your bankruptcy proceedings have been completed.
The triggering of an automatic stay has many benefits for the person filing bankruptcy. While the stay doesn’t discharge debts, it does prevent creditors from contacting you for collection purposes, and it prevents legal collection actions such as wage garnishments, lawsuits, repossessions, and foreclosures. A stay against your current debt can also prevent utility shut-offs.
If a creditor does continue their attempts to collect on a debt after a stay is ordered, they will be considered to be in contempt of court and can face legal consequences themselves.
It’s important to understand that there are some legal actions that a stay cannot protect you against. For example, if you are facing a criminal lawsuit that is in any way connected to your debt, a stay cannot prevent those charges from proceeding. A stay also doesn’t eliminate your obligation to pay child support, alimony, or summons for a tax audit.
Debt Discharge – Removes Obligation to Pay Most Debts
With debt comes stress, especially if you’ve found yourself in a situation where you’re unable to keep up with the endless revolving door of bills coming your way. Knowing that bills are going unpaid, the stress of not knowing which bills to pay this month, and the constant calls from creditors can all make a financially stressful time even worse.
One of the main benefits of filing bankruptcy is that many of your debts will be discharged or eliminated. Bankruptcy can wipe the slate clean of financial obligations, including credit card debts, personal loans, medical bills, and utility bills. Some debts, such as student loans, are exempt from bankruptcy and will still need to be paid.
There’s a common misconception that filing bankruptcy means you will be required to forfeit all your assets. In the majority of bankruptcies, this isn’t the case. Most people who file Chapter 7 bankruptcy can keep many of their assets under legal exemptions.
There are different types of exemptions. Some cover assets up to a specific monetary value; others put exemptions on vehicles used for daily transportation, furniture, and certain sentimental items of value, such as wedding rings.
If you file Chapter 13 bankruptcy, you can still keep your non-exempt assets, although you will be required to pay for them through a tailored repayment plan.
A bankruptcy stays on your credit report for 7-10 years, which seems like a long time if you’re looking forward to purchasing a vehicle, home, or securing a loan in the near future. This is a valid concern, but many people don’t know that filing bankruptcy can often be a positive for your credit standing.
If you have above-average credit when you file for bankruptcy, you might see a small dip in your credit score. If your credit score falls below average, there’s a good chance you won’t see it lower much at all.
The point of bankruptcy is to allow someone in a challenging financial situation to recover and rebuild their credit. Any hits your credit might take are short-lived, because you’re going to
have more opportunities to improve your credit than before filing bankruptcy.
You can expect to get many offers from creditors who want to help you rebuild your credit. Some of these are predatory, so you do want to be mindful of which offers you accept. From a lender’s point of view, there’s a big difference between someone who has accumulated massive amounts of debt they can’t pay and someone who has a relatively clean slate. Bankruptcy can give you that clean slate.
With responsible financial behavior, many people find that their credit score in the months following a bankruptcy is higher than it was previously.
Do You Need Credit Counseling?
Bankruptcy can be a fresh start, but you also want to be equipped with the tools and information needed to build a strong financial future. Before filing for personal bankruptcy, you’ll be required to participate in a credit counseling program. Credit counseling can provide you with a strong foundation for turning your financial forecast around.
Credit counseling can provide tools to help you clear derogatory items from your credit report, use credit cards to your advantage, teach you what types of accounts you should have on your report, and how many you should have.
Credit counseling can shorten your financial recovery duration and help you achieve a higher credit score than the one you had before bankruptcy.
What are the advantages of filing bankruptcy? For many who are struggling with financial stress, the benefits of bankruptcy are numerous. Bankruptcy can be a chance to rebuild your future, eliminate financial stress, and finally shed the image of being someone with poor credit.
If you’re ready for a fresh start and ready to rebuild your life, contact Rick or Lars today.