Pros and Cons of Filing For Bankruptcy
Many Americans are still struggling with debts that they cannot pay due to unemployment and the recession. Some are suffering with overwhelming debts due to a prolonged illness or the loss of a spouse. Whatever the reason may be for your debt problems (even if it is just poor money management), bankruptcy can offer you the relief you need to gain a fresh start and begin to rebuild your life and your finances. There are several advantages to filing a bankruptcy case; however, there are some disadvantages too. After meeting with an experienced Michigan bankruptcy attorney, individuals discover that the advantages of bankruptcy far exceed the disadvantages. Below are a few of the advantages and disadvantages that your bankruptcy attorney will discuss with you during your free bankruptcy consultation.
Advantages of filing bankruptcy
There are many advantages to filing a bankruptcy case. Some are immediate while others are long-term. They will vary by case and by debtor; however, some of the most important bankruptcy advantages are listed below.
Emotional relief – This is the most noticeable and immediate advantage of filing a bankruptcy case. Financial problems create an enormous amount of stress for the individual. This type of stress can lead to health problems such as high blood pressure, heart disease and insomnia. Many debtors report that once they have made the decision to file bankruptcy, their level of stress decreases because they know they are taking a positive step to resolve their debt problems.
End credit harassment – Once your Chapter 7 or any bankruptcy case is filed, the bankruptcy automatic stay prohibits creditors from continuing or initiating collections actions, including lawsuits, wage garnishments and bank garnishments. The automatic stay remains in effect during your case unless it is modified by the court. This means an end to threatening letters, harassing telephone calls and abusive debt collectors.
Save your home, car and other assets – If you home is scheduled to be sold at a foreclosure sale, your car is about to be repossessed or creditors are ready to seize assets, filing a bankruptcy will stop these actions so that you can keep your property. Filing a Chapter 13 bankruptcy allows you to pay the past due payments through your bankruptcy plan over a five-year period. This enables you to keep your house and your car while reorganizing your debts into a manageable monthly payment.
A fresh start – Filing a bankruptcy case discharges most types of unsecured debts to give you a fresh start so that you can begin to rebuild your finances. The bankruptcy discharge relieves you of the legal liability for the repayment of any debt that was discharged in your bankruptcy case. Creditors are barred from attempting to collect those debts in the future, as you are no longer legally liable for the repayment of the discharged debts.
Stop wage and bank garnishments – If a creditor obtains a judgment, your wages and bank accounts may be garnished to pay the debt. Bankruptcy stops this process and either discharges the debt completely or allows you to repay a portion of the debt owed through a bankruptcy plan (without interest). This also includes tax levies – - you can pay your taxes through your Chapter 13 bankruptcy plan without interest. A bankruptcy cases is a much more effective way to deal with judgment creditors and the government.
Financial management and credit counseling courses – As a requirement of filing bankruptcy, you will be required to attend, in person, by telephone or online, a credit counseling and a financial management course. Through these two courses, you will learn skills and you will be given the tools you need to prepare budgets, use credit wisely and manage money better. There are many companies that are approved by the bankruptcy court to offer these classes and the fees are inexpensive (you may even qualify for a waiver of the fee). You have the opportunity to ask questions and obtain advice from credit counselors during each course.
Disadvantages of filing bankruptcy
Creditors have done a very good job of trying to scare people away from filing a bankruptcy case. However, as you can see from the “disadvantages” below, most of the cons are not as frightening or devastating as a creditor would like for you to believe.
Credit score – Filing bankruptcy may cause a temporary drop in your credit score; however, in many cases an individual’s credit score has already been damaged due to late payments, charge-offs and other negative transactions. Even though your bankruptcy case will remain on your credit report for 7 to 10 years, most debtors experience an increase in their credit score as soon as one year after filing a bankruptcy. This is due to several reasons but mainly because the negative accounts are discharged through the bankruptcy. This allows you to begin rebuilding your credit.
Fees and costs – While you can file your own bankruptcy case, it is not advisable. Bankruptcy law is complex and unless you are an experienced Michigan bankruptcy attorney, you are not familiar with the requirements and how best to protect your assets in a bankruptcy. Furthermore, if you ignore creditors, it will cost much more to retain an attorney should a creditor obtain a judgment and try to seize your property or garnish your wages. The cost of an attorney is far less than the cost you may pay by ignoring your debt problem or attempting to file a case on your own.
Losing property – Most individuals worry about this disadvantage most of all; however, the fact is that most Chapter 7 cases in Michigan are “no asset” cases meaning that the debtor does not lose any property. If you do have property that you must protect, your attorney can discuss filing a Chapter 13 case to protect your property from the court and from your creditors.
The pros and cons of filing bankruptcy vary according to the individual case. In most cases, the advantages of bankruptcy far exceed any disadvantages. Attorney Gene F. Turnwald has the experience and knowledge to help debtors find affordable solutions to their financial problems. He offers a free bankruptcy consultation so that he can properly ascertain an individual’s financial situations, offer the best advice possible with regard to filing a bankruptcy and allow the individual to ask questions about the bankruptcy and to explain how it can solve their debt problems. Call to schedule your free consultation today.