When you think about filing for bankruptcy, the things that come to mind are usually negative. You would have to deal with a big blow to your credit score once you make that decision. As you know, your credit score doesn’t just impact your ability to get loans, but it will also decide just how much you would have to pay back as interest and your loan limit. You would also have to worry about credit history as your bankruptcy would stay on your credit report for 7-10 years. You may also have to worry about the denial of tax refunds, job stigma, and inability to get insurance or good insurance rates.
With these so many disadvantages of filing for bankruptcy, you might begin to wonder if there is any benefit to gain. Will it help you get rid of your financial debts? Or would you still be able to keep your property and belongings? Well, there are several benefits you will get when you file for bankruptcy. In many cases, these advantages usually outweigh the disadvantages.
Advantages of Filing for Bankruptcy
Automatic stay –
Once you file for bankruptcy the court will issue an injunction that will prevent creditors from collecting their debts. This also stops all lawsuits for the meantime. Note that an automatic stay against creditors doesn’t mean you are free from debt. Rather it prevents creditors from collecting their debt, claiming your property (in exchange for the owed amount), and suspends all activities until your bankruptcy case is complete or the injunction is lifted.
In any case that a creditor tries to collect a debt, repossess your property, calls you or sends you a letter about your debts, or proceeds with a lawsuit after you’ve filed for bankruptcy, your lawyer can request that they be held in contempt of court. This means the court will stop them from continuing collection activities and fine them or make them pay you for damages if they disobey the order.
If it is your first time filing for bankruptcy, the automatic stay order will last until the bankruptcy case concludes. However, if you have declared bankruptcy once in the previous years, the injunction will only last for 30 days. If you’ve filed for bankruptcy more than once in the previous years, the automatic stay will not go into effect except with an explicit court order.
Note that while an automatic stay will give you some breathing space from debt collection, it doesn’t have the power to stop certain events. For example, an automatic stay will not stop:
- Collection of child support
- Government tax audits
- Establishment of paternity
- Criminal proceeding
- Proceedings against Co-signers or co-debtors
When you file for bankruptcy, you won’t have to pay back every debt. This means you would be able to cancel or discharge certain kinds of debts. These include credit card debt, utility bills, and personal loans. You may also be able to eliminate more dischargeable debts when you file for bankruptcy. This is one of the main benefits of declaring for bankruptcy especially when your personal debts become too much to handle.
Retain Ownership of Your Property
It is quite common to lose your property to the bank or creditors when you’re unable to repay your loan but this doesn’t always have to happen. If you’re on the verge of losing your precious possessions, you could file for bankruptcy to help you retain ownership and get more time to pay up. By filing for bankruptcy, you can exempt an asset that won’t be seized in your bankruptcy claim. If you file for either Chapter 7 or Chapter 13 bankruptcies, you should be able to use this option.
There are different ways to exempt property from being repossessed. Depending on your bankruptcy case, you may be allowed to exempt up to a certain dollar amount of an asset. For example, in Nevada, you would be allowed to retain ownership of property with equity worth up to $500,000 in your bankruptcy case. This could cover the entire value of an asset. If you are a homeowner, this type of exemption might help you maintain ownership of your home. Other types of exemptions would cover only certain types of assets like your motor vehicle, wedding ring, or any other valuable items in your possession. You might also be able to choose to exempt any property of choice that you own with the wild card exemption of $1000 in Nevada.
When most people think about filing for bankruptcy, they are usually worried about their credit score. A bankruptcy filing would remain on your record for up to a decade which could mean higher premiums on insurance, low loan limits and higher interest rates on personal loans. However, there is a good side to all this. When you file for bankruptcy, you can cancel your dischargeable debts, stall your creditors to buy you some breathing room, and start focusing on building back your credit score. This would help you build a good financial reputation and get back in the good books of borrowers.
No Credit Card Equals Better Spending
A credit card with a ten-thousand-dollar limit might encourage you to go on a spending spree, however, by the time you get back to your senses, you would be tens of thousands of dollars in debt. For most people, that could take anywhere from months to years to pay off. When you file for bankruptcy, you may lose your credit cards. While this may seem like a bad thing, it would help you build back your credit score. With no credit card to rely on, you would have to live within your income by spending only what’s necessary. This may help you make better financial decisions in the future and prevent more bankruptcy filings.
Before filing for bankruptcy, you should get as much information as you can. Speaking with a lawyer would help you make the best decision and actually decide if you need to file for bankruptcy or not.