You may be struggling with debt due to an unexpected event, such as an illness or job loss. Perhaps you have been considering bankruptcy if the debt has become overwhelming but are hesitant because of the perceived stigma that comes with filing for bankruptcy.
It is normal to worry about your personal and professional reputation if you file for bankruptcy, but there are many benefits to filing.
Additionally, many people today understand that filing for bankruptcy does not mean that someone is bad with money or a failure. Sometimes bankruptcy is even a smart financial move.
Chapter 7 and Chapter 13 bankruptcy
The two main types of consumer bankruptcies are Chapter 7 and Chapter 13 bankruptcy. Chapter 7 bankruptcy discharges all qualifying debts. Not all debts qualify for Chapter 7 bankruptcy.
For example, medical and credit card debt generally qualify for bankruptcy. Student loans and child support debt typically do not.
Rather than discharging all the qualifying debt, Chapter 13 bankruptcy consolidates your debts and arranges a three to five-year payment plan. If you make all payments on time the debts are discharged.
Chapter 13 bankruptcy is often a good choice if you are worried about losing a home. If you have equity in your home, you might be forced to sell your home in Chapter 7 bankruptcy to pay your debts.
No matter what type of bankruptcy you file, here are some of the top benefits to filing.
Bankruptcy can prevent foreclosure of a home or repossession of personal property. This is a common reason people file Chapter 13 bankruptcy. If you are behind on mortgage payments, a Chapter 13 payment plan can help prevent you from losing your home by being forced to sell.
The many benefits of the automatic stay
The automatic stay is another benefit to bankruptcy. The automatic stay goes into effect immediately once you file Chapter 7 or Chapter 13 bankruptcy and requires that all collection efforts by creditors cease.
Once the automatic stay is in effect, creditors can no longer contact you or try to collect their debt. This provides you with time and relief from creditor harassment. You can use this time to get caught up on payments and figure out the next steps without worrying about steps creditors may take, such as wage garnishment.
It is true that filing for bankruptcy will negatively affect your credit. However, if you are close to bankruptcy, chances are your credit score has already been suffering for some time.
Rebuilding credit
Once bankruptcy is filed you are on the path to rebuilding your credit. Your credit score might even improve after your bankruptcy filing since you could have a better debt to income ratio.
Additionally, contrary to what you may believe, you can make purchases on credit and even potentially purchase a home after bankruptcy. The terms might not be the most favorable, but it is not impossible.
Finally, you are required to take financial education courses as part of the bankruptcy process. You can use the knowledge from these courses when making future financial choices.
Whether bankruptcy is the right choice for you depends on your specific financial situation. You should not file for bankruptcy without seeking advice and guidance to make sure it is best.