Pros and Cons of Declaring Bankruptcy

Posted by Erick Bohm on September 5, 2017 at 12:00 PM
Erick Bohm

the pros and cons of filing for bankruptcy.jpegLet’s face it, nobody wants to file bankruptcy. Then again, nobody wants to struggle financially, either. Unfortunately, we all struggle with our finances at one point or another. Sometimes we find ourselves in a financial bind and we need help getting out from underneath the pressure. Bankruptcy is a powerful option that helps consumers resurface after being brought down by crippling debt. Whether the debt is caused by ever-increasing interest rates, unmanageable credit cards, divorce, or medical related issues, bankruptcy may be a great option to get your life back.

Different Options for Consumer Bankruptcy

When it comes to consumer bankruptcy you have two options: Chapter 7 and Chapter 13.

Chapter 7 bankruptcy is a process where your financial liabilities can be eliminated upon the filing of your bankruptcy petition. Often, unsecured debts are eliminated after receiving a Chapter 7 discharge. In some instances, secured debts are eliminated in a Chapter 7 as well.

Chapter 13 bankruptcy is a debt consolidation plan where debtors make a monthly payment towards their debts for a period of three to five years. Depending on the debtor’s financial posture, some or all of the debts are repaid. At the end of the three to five-year period, any amount of debt left unpaid is eliminated, tax free, forever.

There are a number of considerations when determining which Chapter of bankruptcy is right for your situation. Feel free to contact one of our MN Bankruptcy Attorneys to discuss your options.

Pros of Declaring Bankruptcy

The benefits of filing bankruptcy can be appreciated almost immediately after meeting with one of our MN Bankruptcy Attorneys. Many clients leave our office with a sense of relief after getting more information on how bankruptcy helps eliminate financial stress. Whether you’re concerned about a pending judgment, or your creditors are calling you thirty times a day, understanding bankruptcy can help give you peace of mind with your current situation.

Clients who file bankruptcy feel an immediate sense of relief. As soon as your case is filed an automatic injunction, called the Automatic Stay, goes into effect which prevents your creditors from being able to contact you. Once the Automatic Stay is in place, your creditors are not permitted to attempt future collection action against you. They cannot call you, send you letters, or request payment of any sort until your bankruptcy is complete. And, if the debt is discharged in the bankruptcy, they cannot ever contact you for collection purposes regarding that specific debt again.

How much are the minimum payments, right now, on the debts you could potentially eliminate through bankruptcy? $400, $500, $600 per month? Well, once you file bankruptcy, that’s money in your pocket. Bankruptcy is not going to make you rich by any means, but it is going to free up some of your hard-earned money to help you live more comfortably. It’s no surprise that those who are contemplating bankruptcy likely live a reduced lifestyle. Bankruptcy may be able to change this.

Some clients see an increase in their credit score after receiving their discharge. This is not a guarantee, but it does happen from time to time. The reason for this is your debt-to-income ratio drastically changes. Prior to filing bankruptcy, your debt-to-income ratio is likely heavy on the debt side of the scales. However, once you receive a discharge, your debts are eliminated. So, regardless of how much income you have, your debt-to-income ratio improves and this is one of the factors taken into account when the credit bureaus determine your credit score.

Whether you see an immediate increase in your credit score or not, after receiving a bankruptcy discharge you will be well on your way to rebuilding your financial profile. Everything in life takes time, but after receiving a bankruptcy discharge you can focus on rebuilding your credit rather than focus on how you’re going to “get by” living paycheck to paycheck.

Cons of Declaring Bankruptcy

Declaring bankruptcy doesn’t come without certain repercussions. Most of the negative aspects of filing bankruptcy are short-lived and can be overcome fairly easily. There’s often a feeling of guilt associated with filing bankruptcy because we feel a need to pay back our debts. If you’re feeling guilty about your situation, you’re not alone. Bankruptcy can be stressful, but that’s what we’re here for. We want to make your life easier and help you get your life back. If you’re feeling guilty about the idea of filing bankruptcy, let me be the first to tell you, that’s completely normal! It’s important to remain focused on getting your financial life back. After all, we know creditors are not going to pay your bills for you. You have to do what’s best for you and your family.

Bankruptcy will appear on your credit report for up to ten years. Now, that can be a scary thought. However, this is not as bad as it may appear at first glance. Your credit may start improving shortly after filing bankruptcy. You will almost immediately start receiving new credit card offers and new auto loan offers. We advise against taking any of these offers shortly after filing bankruptcy because of the high interest rates that are generally attached to them. There is a strategic way of improving your credit after filing bankruptcy and we have friendly staff that are willing to help.

In addition to helping you through the bankruptcy process, we also have a 90 Day Credit Repair Program which you will have the opportunity to enroll in once you receive your bankruptcy discharge. So, if you’re concerned about the unknown, there is one thing we can guarantee. We’ll be by your side before, during, and after the bankruptcy. After all, we’re here to help you get your life back!

Most people are concerned about filing bankruptcy because they think they’re going to lose their house, car, or some other personal asset. Contrary to this misconception, majority of the time our clients do not lose a thing as a result filing bankruptcy. If this a concern of yours, feel free to ask one of our MN Bankruptcy Attorneys how bankruptcy may affect your assets.  

Closing Thoughts

Like any major life decision, there are pros and cons. The decision to file bankruptcy is very much a personal decision and only you can determine whether or not it is the best decision for you. We’re available to answer any questions you have about the process. If you decide bankruptcy is the best option for you, we’ll be by your side throughout the entire process.

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Topics: Bankruptcy, Chapter 13, Chapter 7

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