Filing for bankruptcy is not a decision that should ever be taken lightly. While you may be able to take advantage of some of the many possible benefits you could receive from doing so, filing is not without consequences. As a result, you need to carefully weigh both the costs and the benefits of going through this process and find out if it’s right for you before starting. Here are just a few of the pros and cons of bankruptcy you should take into consideration.
Pro: Automatic Stay
When you file for bankruptcy, you’ll be granted an “automatic stay” which is a temporary halt on any collection efforts against you. Wage garnishments, bank levies, and foreclosure processes will all be halted temporarily to give you a chance to sort out your affairs and negotiate with creditors.
Con: Long-Term Credit Damage
While bankruptcy may help you rebuild your life, the process isn’t a quick reset button. Bankruptcy declarations remain on your credit score for seven to ten years, and that means you could feel the effects for as much as a decade once the process has been completed. However, most people who are responsible and diligent with any new credit obtained post-bankruptcy are able to rebuild their credit to 700+ in as little as two years.
Pro: Debt Discharge
Have you ever wanted to get rid of your credit card debt that just doesn’t seem to want to go away? Chapter 7 bankruptcy could lead to any remaining unsecured debt being discharged once the process is completed. That can mean the burden of thousands of dollars in debt will be cleared away!
Con: Difficulty Finding Loans & Credit Lines
The damage a bankruptcy declaration can do to your credit rating can be tremendous. For at least a few years, you’ll find it difficult to obtain conventional personal or home loans from sources where a credit check is part of the application process. It is not uncommon to receive offers for a credit card immediately following your bankruptcy discharge. Usually the offer will have a very low limit and a very high interest rate. Credit card companies usually offer these type of cards because they know that you cannot file a Chapter 7 bankruptcy for another 8 years and you no longer have any other unsecured debt.
Pro: Regain Financial Independence
People who work hard and stay dedicated to their plan to reach their goals often develop better money habits, become better at managing their debt, and in turn, more prudent consumers. Many people end up with better credit than ever before within a few years after completing their bankruptcy.
Con: Results Aren’t Guaranteed
When you declare bankruptcy, there’s no guarantee your problems will be gone forever. It’s up to you to take advantage of the opportunity bankruptcy gives you, and those who simply waste the opportunity will only find themselves right back where they started and facing trouble once again.