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Bankruptcy is a word that conjures images of blacklists and eviction, with no hope of ever securing a loan or credit card again. It’s time to put the stigma to bed because, while filing for bankruptcy has serious consequences, it can also be the best thing for people who can’t escape crippling debt. Before you file for bankruptcy, however, consult a debt resolution specialist to determine if you qualify and which type of bankruptcy you qualify for.

Types of Bankruptcy

There are several types of bankruptcy, but the two that apply to private individuals are Chapter 7 and Chapter 13.

Chapter 7 is also known as liquidation bankruptcy because assets are sold to discharge your debt. Chapter 13 is also known as reorganization bankruptcy because you don’t sacrifice any assets, but you do have to follow a repayment plan to discharge your debt within three years.

You don’t qualify for Chapter 7 if the assessment determines that your income is too high to meet the criteria. If this is the case, Chapter 13 might be an option.

This is why working with a debt relief service agency is necessary, given that you have to undergo mandatory credit counseling before you can actually file for bankruptcy.

Pros And Cons of Bankruptcy

Depending on your financial circumstances, bankruptcy has several pros and cons that you and your consultant need to consider.

Advantages Of Bankruptcy

Some of the advantages of bankruptcy include the following:

  1. An immediate break from creditors.

As soon as you file for bankruptcy, you get an “automatic stay,” which means that your creditors can no longer hound you for their money. For the time being, you’re also free from the risk of foreclosure and repossession.

  1. No wage garnishment.

Income earned after filing bankruptcy doesn’t fall within the ambit of the “bankruptcy estate”. The creditors can’t claim it to settle your debt. Also, this doesn’t include child support. You have to maintain your child support and alimony payments regardless of your bankruptcy status.

  1. You don’t lose essential assets.

Some, but not all, of your personal assets can be sold to discharge your debt. Your home, car, clothing, and equipment or tools necessary for work and medical treatment are exempt.

  1. You won’t have to pay the full debt amount.

The court determines the debt payment terms of your case. This is based on analysis, evaluation, and assessment. Your creditors will make do with the amount allocated to them by the bankruptcy judge, even if it’s a small fraction of the actual debt owed.

Sometimes you don’t pay anything at all. This makes sense considering that your inability to pay creditors is what got you into this situation. The judge could summarily dismiss all unsecured debts. This wipes out credit card debt and personal loans, as well as any medical debt you may have.

  1. No legal action.

Once your debt has been discharged, that’s it. None of your creditors can take umbrage and file a suit to force you to pay the outstanding balance. This isn’t blanket immunity, however. If you wind up in financial trouble again, that future debt is on the table.

  1. Relief from debt.

There’s nothing quite like the feeling you get when the burden of debt is lifted from your shoulders and you finally have room to breathe again. Yes, you still have some way to go, but a fresh start and a new financial life await you at the end.

Downsides Of Bankruptcy

Some of the cons are pretty obvious, but there are a few sneaky ones tucked away.

  1. Decimated credit.

Your credit score or credit rating is ruined, but if you’re drowning in debt, the chances are it was ruined already. Bankruptcy stays on your record for 7–10 years, which makes applying for credit very difficult for a very long time.

  1. It costs money.

It’s counter-intuitive, but when you have no money to pay your major creditors, you have to find money to pay for the privilege of being bankrupt. The filing fee for Chapter 7 starts at about $300, while filing for Chapter 13 costs nearly $340.

There are also likely to be attorney fees because the process is complicated and you can’t do it on your own. Bankruptcy attorneys start their fees for Chapter 7 at $1300 and $3000 for Chapter 13.

  1. You lose non-essential assets.

You can keep some valuable assets, like your car, but you’ll have to say goodbye to anything that smacks of luxury—your lounge suite and home gym, for example.

  1. Credit will be hard to find.

Other than the fact that lenders are leery of anyone who’s been declared bankrupt, bankruptcy laws prohibit you from applying for a mortgage for at least two years after your debt has been discharged. You also don’t qualify for any loans until the judge officially discharges your debt.

  1. Debt can be passed on.

Anyone with whom you have a joint account or who acts as a co-signer on your accounts will be responsible for the debt after you file for personal bankruptcy. This has the potential to destroy friendships, partnerships, and even families.

What If You Don’t Qualify?

Certain circumstances may disqualify you from bankruptcy proceedings. If this is the case, you’ll have to consider alternative debt relief options.

You could sell your assets on your own and possibly get a better price than your court-appointed bankruptcy trustee.

Otherwise, you can look at debt settlement programs from accredited debt service providers, for example, debt management plans and debt consolidation loans.

Avoid The Cons With A Reputable Debt Relief Company

Bankruptcy might have advantages, but it’s still not pleasant to contemplate. A debt management company with a good track record, like Alleviate Financial Solutions, might have a solution to your financial issues that keeps you out of bankruptcy court. We use a process of debt relief assessment, account management, and negotiation to deliver a brighter financial future.

Whatever the cause of your debt, help is just a call away. Contact us at (800) 308-2935 to arrange a free consultation, or complete the contact form and we’ll get back to you.