It would be wrong to say that filing for bankruptcy is a smart financial move, in most cases. While it isn’t always easy to avoid, you should always work hard to make sure that you’re not on track to finding yourself in this sort of position, keeping your money balanced and your commitments up to date. Of course, though, there are some instances when bankruptcy can be a smart course of action. Let’s take a look at this option, giving you the chance to assess it against your own position.
What Is Bankruptcy?
Before diving into the good and bad elements that can come with bankruptcy, it makes sense to explore what this process actually means. When someone declares bankruptcy, they are essentially telling the financial world that they cannot afford to pay the debt they have accrued. There is a range of different types of bankruptcy, but the status will usually last for a year or until you are able to settle your debts.
This process gives people the chance to restructure repayments, come to new agreements with their creditors, and even wipe away their debt if it has been looming over them for a very long time. In the case of Chapter 7 bankruptcy, people will usually have all of their debt wiped, but this will show on their financial record for as long as 10 years, making it extremely difficult for people to live a normal life until the record has been erased.
The Pros & Cons of Bankruptcy
People often find themselves confused when they are first looking at the process of bankruptcy. It can be hard to understand how it all works, and this makes it extremely difficult to see the downsides and benefits that can come with it. You can find a detailed list of the main pros and cons of this process below, but it could also be worth doing some additional research to make sure that you are considering every aspect of your personal situation.
The Pros of Bankruptcy
While many people view bankruptcy as a wholly negative process, there are definitely some positive aspects to it. For those who have been battling with debt for a long time, these pros may make the cons seem irrelevant, but you have to weigh this up for yourself before you can make a decision.
- Automatic Stay: With letters, phone calls, and emails coming from all of the people you owe money to, it can be very difficult for those who are deeply in debt to stop and think about their money. Bankruptcy in the USA comes with a 30-day stay that will prevent these companies from harassing you, and this can be extended by your trustee.
- Trustee Support: Alongside an automatic stay, you will also receive trustee support when you declare bankruptcy. This means that you will have the chance to work with a financial expert to create a budget, work on a payment plan, and negotiate with your creditors to get you the best deal at the end of it all.
- A Light At The End: If you work hard and follow the advice of your trustee, you should be able to overcome your financial problems and will be able to look forward to a brighter future. This can be well worth it when you’ve spent a long time struggling to manage your debt.
The Cons of Bankruptcy
Like any legal process, there is a negative side to declaring bankruptcy. This option is often viewed as a last resort, making it well worth considering all of your options before you choose this route. Of course, though, the negatives of bankruptcy may not matter too much to you if you don’t have any choice in the matter.
- Long-Term Records: As mentioned above, bankruptcy can leave a stain on your financial record that will last for a long time. This can make it hard to get loans in the future, even once you’ve taken control of your money. This is something that simply cannot be avoided when you declare bankruptcy.
- Limited Financial Freedom: You will have to work with your trustee and follow their instructions if you are going to maintain the stay in place. This means that you will have less financial freedom than you used to, and you may even have to make compromises on your spending to make sure that you cover your debts.
- Loss of Property: While filing for bankruptcy will get you a stay on debt collection, assets like houses, land, and vehicles could still be on the chopping block as a way to pay back the money you owe. Alongside this, you will probably lose any credit cards and overdrafts that are in your name.
- Stigma: Employers and landlords may not be thrilled to see that you have filed for bankruptcy. While discrimination is illegal when professionals like this are making choices, there aren’t any laws to protect those who are being punished for the financial position they’re in.
How To Go Bankrupt
Declaring bankruptcy can be quite a complex process, making it worth doing plenty of research before you get started with this. It’s well worth having an understanding of the process you will be going through, along with the help you can receive and the laws that are in place to protect you. The process you will need to follow is outlined below.
Find a Lawyer
The very first stage in this process is going to involve finding a good bankruptcy lawyer to help you through the whole thing. You need someone who has dealt with cases like yours in the past, ensuring that they have the experience to get through each stage without making mistakes. This lawyer can usually act as your trustee once you get to that stage in your bankruptcy.
Once you have a trustee/lawyer in place, it will be time to start negotiating with the people you owe money to. This can be a tricky process, and you will need someone who is used to talking to organizations like these to get the best results. At this stage, you will be able to get an idea of what you will have to pay back to settle your bankruptcy.
Build & Follow a Plan
With your negotiating over, it will finally be time to build your financial plan and start following it. This will usually mean paying back as much as you can afford, making sure that the process is as quick as possible. Your trustee can help you at this stage, while also performing the mandatory check-ins that come with bankruptcy.
While it may take some time, those who follow the advice of their trustee will almost always enjoy success with bankruptcy. You may have to wait a decade to be able to take out loans properly, but this will be a small price to pay to be able to live your life without the burden of crushing debt.
With all of this in mind, you should have a much better idea of the value of bankruptcy in the modern world. This can be a great way to save yourself from getting caught in a big financial mess, though you have to be careful to make sure that you are following all of the rules and listening to your trustee along the way.