Bankruptcy Pros and Cons
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UPDATED: Sep 3, 2020
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The decision to file for bankruptcy can be a difficult one. It’s important to consider the pros and cons and make sure that bankruptcy is your best option.
If used properly, bankruptcy can help you out of severe debt and financial hardship. It can be an effective tool to help you hold on to some of your most important assets. While a Chapter 7 bankruptcy may require you to turn over some of your possessions or money to repay your creditors, it also has exemptions that allow you keep things like retirement accounts, home equity, and personal possessions, depending on the exemptions you are entitled to. Meanwhile, a Chapter 13 bankruptcy doesn’t require you to turn over your home, personal possessions or all of your savings. However, a Chapter 13 will require that you pay your creditors something toward your debts over a period of time.
Bankruptcy can give you a financial fresh start, putting a stop to collection calls and throwing away money on high-interest credit card finance charges and late fees. Regardless of whether your debts are discharged in a Chapter 7 or put into a Chapter 13 repayment plan, bankruptcy makes those debts manageable and turns them into something you can handle.
Of course, this doesn’t mean that bankruptcy is a great option for everyone. There are plenty of downsides to bankruptcy. The most obvious is that it can severely hurt your credit score, making it extremely difficult to obtain credit and loans in the near future. A bankruptcy may also affect your employment prospects, and car insurers may use your credit score to determine your insurance premiums.
Keep in mind that bankruptcy does not completely get you off the hook for your debts. For example, under Chapter 7, some of your assets may be sold; and with a Chapter 13, you will have to pay back some of your debt over a period of time.
Also, debts like most student loans or certain tax obligations are not dischargeable under bankruptcy and will remain after your discharge. Likewise, secured debt like your mortgage or car loan will stay with you if you want to keep your house or car.
Speak to a bankruptcy attorney to find out if bankruptcy is the right option for you.