What Are Advantages of Filing Bankruptcy?
From the time we are children, it is programmed into our brains that filing bankruptcy is a bad thing. Ever played Monopoly? If you file bankruptcy, you lose. You don’t get a second chance, you don’t get a reorganization plan or a path to rebuilding your financial future. You just lose.
It is no wonder then that people are so afraid of the word bankruptcy. However, bankruptcy is really about rebuilding your financial life. There are a lot of benefits that come from filing bankruptcy, and these benefits could mean the difference between struggling financially while dodging debt collectors for the next decade or more of your life and building a firm financial future with better credit, better opportunities, and an easier time providing for your family.
Let’s take a look at these benefits:
Automatic Stay Protection
For someone struggling to make their monthly payments, and for whom the constant ringing of the phone sets off reactions of panic and guilt due to constant harassment by bill collectors, this might be the biggest benefit: a great pause on all debts. Collectors cannot harass you. They can’t even try to collect. The court puts a “stay” on all of your debt, meaning no more monthly bills and no more debt collection efforts until your case is resolved. (And hopefully, assuming your case is successful, no more debt collection at all.)
No More Garnishments
If debt collectors have been attacking your paycheck, garnishing your wages, or putting liens on your property, a bankruptcy filing could provide instant relief by stopping those garnishments. Creditors cannot reach your wages while you are filing for bankruptcy, which means you have more money coming back from your paycheck for rent, food, and other necessities.
The point of bankruptcy, of course, is to get rid of the debt. And for nearly all debts, bankruptcy does just that. We’ve discussed some debts that cannot be discharged, and some that are very difficult to discharge, but for the majority of consumer debt, a successful bankruptcy filing will wipe it out. Period.
Secure Your Assets
It is important to know that filing for bankruptcy doesn’t mean that the government is going to show up and have a yard sale, selling all of your prized possessions in front of your neighbors. You might be surprised to know that most of your essential assets are protected in bankruptcy: the tools you use for work, your clothes, your cars, furniture, and even your home likely will slot into an exemption and therefore will be untouchable in the bankruptcy process. Of course, there are limits on values and number of assets you can keep, so it is best to discuss the fine details with an attorney before assuming that you can keep everything.
A New Financial Life
The biggest benefit of filing for bankruptcy is knowing that you have a fresh start. It has probably been overwhelming to look at your credit report, to deal with the garnishments and constant barrage of bills. You stare at all of this debt and wonder “how will I ever get out of this?” You feel guilt for failing to meet your obligations. Most people aren’t happy about being in debt and having to file for bankruptcy, and most of them feel huge amounts of shame and remorse for being unable to meet their financial obligations.
Don’t. How often do you hear stories of corporate bankruptcies? Even presidents, recent ones, have a history of filing bankruptcy. Bankruptcy is so important to the rights of the everyday person, that it was written into the Constitution of the United States. There is nothing shameful about needing to take a step aside from the financial grind and hit the reset button on your finances. It may hurt your credit in the short term, and it may mean a few years of responsible financial management and work in order to rebuild your credit report, but it also means you get a second chance – a new financial future.
There are plenty of reasons to file bankruptcy, and there are a handful of limits to the above benefits. Not everyone will qualify for every benefit, and there are limits to the number of exemptions, such as the number of cars that you can keep. The best thing you can do if you are considering bankruptcy is to sit down with a bankruptcy attorney and chat with them about the process, your assets that you are concerned about losing, and what the best way forward is for your financial future.