When you are knee deep in debt, you can consider bankruptcy to revamp your economic life. It ensures you a debt free life eliminating all the hazardous consequences that your creditors or lenders impinge upon you. But this very option casts a long lasting effect on your financial status identifying you as a high risk borrower to your future creditors. Let us check what are the merits and demerits of bankruptcy and how you can tackle them.
Benefits of Bankruptcy
1) Once you file for chapter 7 Bankruptcy an ‘automatic stay’ order is ushered upon your creditors preventing them to connect with you and asking you for reimbursement.
2) After going through the procedures of chapter 7 bankruptcy you can enjoy an immediate debt relief more speedily than other traditional debt relief programs which generally involve lengthy procedures.
3) With Chapter 13 bankruptcy you are making promise before the court that you will repay all your debts through all the installments of a court designed time span. Therefore, it extends your time so that you can make your payment as per your convenience.
4) By filing chapter 13 you can also get a reduced amount of interest rate over your debts.
It offers you an option to restructure your installments, preventing your valuable assets from liquidation.
6) Here, a court appointed trustee is formed to oversee the financial transaction. As your payment is made through the trustee, your creditor is legally prohibited to contact you.
In fact both the chapter 7 or 13 bankruptcy legally protects you from the threats of creditor harassment and unwanted phone calls that may hamper the peace of your private life.
Disadvantages of Bankruptcy
1) Once a debtor files chapter 7 bankruptcy; all his non exempt assets will undergo a thorough scrutiny by the federal law court. The sole purpose of this court proceeding is to repay your creditor by selling your non exempt property. Thus it may take away from you all your valuable assets and possessions. Naturally it may not be a desirable option for you.
2) When you are reported as bankrupt by your creditor to the credit bureau, it gives a huge blow to your credit score.
3) The scar on your credit history remains for 10 years for chapter 7 bankruptcy and 7 years in case of chapter 13 bankruptcy, hindering you from obtaining further credit as a credit-worthy borrower. It destroys your credit worthiness and your credibility receives a blow when you seek loans from the banks to purchase cars or invest in real estate.
5) Again, you will be eligible for chapter 13 bankruptcy only if the court is convinced that you have a steady flow of income and you can repay your creditor within 5 years.
6) Filing bankruptcy does not discharge you from your student loan.
7) The alimony and child support cost are not forgiven.
8) The social implication of bankruptcy is also a matter of grave concern. You may be socially discriminated and employers may be reluctant to offer you a decent job.
Thus bankruptcy has its own share of positive and negative aspects that needs to be understood before putting your right foot forward. It can pull you off from the strangle of debt that you are desperately trying to shrug off .On the flip side, it can damage your future prospect of getting big loans from any creditor. Therefore you have to think carefully whether you can opt for this option or not.
This article is contributed by Catherine Woodward, a Financial Writer associated with weredefine.com.