Declaring bankruptcy is a tough situation to be in. When it comes to filing for bankruptcy, you have to be prepared for all the consequences, good or bad, that will result from that decision. You’ll often feel a little uneasy when thinking about bankruptcy because we normally associate bad reputation and credit scores with the prospect, but don’t let this stigma blind you from seeing the good that might come out of it as well. In any case, you have to be prepared for the damages that will follow and manage your expectations. You can only achieve this when you are fully aware of the advantages and disadvantages of declaring bankruptcy.
The following guide will help you do just that.
Declaring Bankruptcy Will Suspend Debt Collection
A bankruptcy case will prompt the court to automatically stop any debt collection; thus, you won’t have to worry about paying your debt in this difficult time. However, this doesn’t mean that your debt will be canceled. To understand exactly what bankruptcy entails, you need to consult a chief restructuring officer (CRO) if you’re in the USA or a licensed insolvency trustee (LIT) if you’re in Canada. They will be able to tell you what to expect when filing for bankruptcy, which allows you to decide whether it’s the right financial solution for you. Suspension of your debts means that you won’t get calls from debt collectors, lawsuits one debts, home mortgage foreclosures, and there won’t be any property repossession. This, however, won’t be the case forever. When the proceedings of your bankruptcy are over, you will still have to pay your debt.
Filing for Bankruptcy Can Be the Low-Cost Option
As mentioned above, filing for bankruptcy will suspend your debts. This includes credit card debts, medical bills, loans, civil judgments, overdue rent, overdue bills, older tax debts, and business debts. However, there are some debts, like new tax loans and child support debt, that you cannot be exempted from, but the interim in which you’re given for the proceeding of your bankruptcy case can give you the breathing space and time to think of a plan to manage your debts in the future. This makes paying for the costs of your bankruptcy case much lower than having to deal with all your debts and obligations.
Declaring bankruptcy can be a good chance for you to devise a financial plan to repay your debts.
Losing Your Credit Cards
On the other side, declaring bankruptcy can have a huge impact on your reputation, which will prompt credit card companies to cancel any credit cards you’re holding. While this is something to be expected, even before filing, freezing credit your credit cards might still complicate things. You won’t, of course, have to pay your credit card debts, but you also won’t be able to apply for new credit cards when your bankruptcy case is pending. You can expect, however, offers from credit card companies to apply for unsecured credit cards, but these, unfortunately, have high-interest rates and require that you pay annual fees.
It Will Have an Impact on Your Credit Score
Naturally, filing for bankruptcy will have an immediate impact on your credit score. Your score will fall based on the information on your credit report and where your credit stands. Also, the higher your credit score is, the more points you’re going to lose, but if you already had a mediocre credit score, chances are your credit score will not be impacted as much. In any case, credit scores mostly end up falling around the 500 range. If your score was already somewhere that range, then you won’t have many credit points to spare. These numbers, however, are a rough average of how much your credit score could be impacted; you won’t actually know how much your score will drop until you file, and your credit report comes out. This doesn’t mean that declaring bankruptcy will ruin your credit score for the unforeseeable future. Once you handle your finances, you can start with a clean slate and focus on improving your credit score.
It Is Possible to Lose Your Property and Real Estate
Normally, real estate and property are fitted under exemptions, but this is not always the case. The court might sometimes deem it necessary to confiscate some of your luxury possessions or part of your property in order to pay your creditors. If you own an investment property or a property that you don’t use as a residence, then your trustee is likely to take this property and sell it to pay your creditors, so you should know that losing property is a potential scenario.
Not all that was mentioned here has a 100% chance of happening to you. A person’s specific financial circumstances can play a role in the consequences mentioned above, but in order to know if declaring bankruptcy will be in your favor given your current financial situation, seek the advice of a bankruptcy attorney. Expert guidance can be valuable in times like these, so make sure that you consult one.
