Pros and Cons of Filing Bankruptcy
If you have a lot of debt that you worry you’ll never be able to pay back, then you need to consider bankruptcy. This is a tool that can be used to help you get out of debt and back to living your life. There are many reasons for using this tool, but a good way to decide if this is the path you want to follow, is to list the pros and cons. Here are some positive and negative things about bankruptcy that you need to know:
Pros of Bankruptcy
The biggest reason to consider filing bankruptcy is that you get out of debt all at once. Through a bankruptcy proceeding, your debts are negotiated down, consolidated, and you pay the lump sum – either through a single payment for a few years, or through the sale of assets to cover the amount in full.
Another great pro is that creditors can no longer attempt to collect directly from you. When you file for bankruptcy, the courts will inform your creditors that they are no longer allowed to contact you through phone, mail, or in person, to collect money from you. Instead, they must seek settlement through the court proceedings, talking to the bankruptcy trustee or your lawyer.
Even though some assets can be seized to pay off creditors during a bankruptcy, most people find that their possessions are safe. Your home, your main car, your clothing and belongings, are usually exempt. Only if you have second homes, or very valuable assets that aren’t necessary for daily living, like valuable collections or family heirlooms, can your possessions be seized.
If your credit score is very poor, you may be surprised to learn that another pro of filing bankruptcy is that it helps build your credit. Once you file for bankruptcy, there are many cards and lenders that offer post-bankruptcy lines of credit which can help you get your credit score built back up quickly. And the myth that a bankruptcy keeps your credit score low for a decade after the filing is just that – a myth.
Cons of Bankruptcy
There are a few negative things about filing for bankruptcy that you should know. You will have a bit of a harder time getting a mortgage for about two years after the bankruptcy. Additionally, your credit cards are usually cancelled once the credit card company gets the notice that you are filing bankruptcy. So you may lose key lines of credit that you’ve relied on.
You also cannot file another bankruptcy for eight years after filing Chapter 7, or for four years after filing Chapter 13. So if you find yourself under water again very quickly, you won’t have the same access to this tool that you do now.
Finally, the biggest con for most people is that bankruptcy doesn’t take care of all debts. Student loans, child support that is owed, and other types of debt are exempt from being wrapped up in a bankruptcy filing. If your debt is primarily due to things that are exempt, you may find that it is not worth the time and money.
Overall, Bankruptcy Can Help
If you are drowning in debt of any kind, bankruptcy can be a great way to get your life back on track. Even if you think that you’ll be wasting your time, you may find that getting rid of smaller debts helps you to free up the income you need to pay off exempt debt.
If you are interested in the process and wondering if a bankruptcy in NYC could help you, contact us for a free consultation at 212-244-2882.