Filing for bankruptcy is one option for debt relief. Bankruptcy involves making a major decision about how to go forward in your life, and with your finances. There are two types of bankruptcies for which you can file, and definite benefits to choosing either one. There are also drawbacks and consequences to consider.
Chapter 7 bankruptcy involves removal of most, or all of your debt responsibilities. Chapter 7 allows for you to move forward quickly with an almost entirely clean slate, aside from the bankruptcy itself.
A Chapter 13 bankruptcy involves paying off a portion of your debts over a longer period of time, and is not unlike an expansive type of debt settlement program. Chapter 13 might take years to complete and takes court mediation to be handled correctly and as fairly as possible to you.
You are required to take a means test, however, which compares your income to the median poverty level in your region. Chapter 13 might be the only type of bankruptcy for which you qualify if your income level is too high. What are the pros and cons of bankruptcy?
There are several cons to filing for Chapter 7 and bankruptcy in general. Chapter 13 stays on your credit report for seven years and Chapter 7 stays on it for ten years.
Some of your debts might not be included in your bankruptcy as well, leaving you with damaged credit and remaining debt. Because of the damage to your credit rating, obtaining new credit might be difficult for many years to come. Any person who cosigned a debt with you might also be caught up in the bankruptcy aftermath. For example, creditors might come after your cosigner(s) to collect on your debt.
Bankruptcy does have many benefits, however. Some significant pros of filing bankruptcy include:
• Most of your debt is discharged & removed from your credit.
• An automatic stay is granted, preventing creditors from pursuing further collections.
• Wage garnishment & seizure of your property are disallowed.
• Your driver’s license is protected from revocation due to debt incurred by an auto accident.
• Discrimination from government agencies & general employers is disallowed.
• You are granted the ability to start your financial life anew.