The decision to file for bankruptcy is a very personal one, and it's one that should not be made until you have reviewed all of its pros and cons. Remember, too, that bankruptcy not only gets rid of many of your debts or manages them more effectively, but it has lasting effects on your financial future - positively and negatively.
Factors Favoring Bankruptcy
A number of factors should be considered when thinking about filing for bankruptcy. One important factor to keep in mind is that if you file for bankruptcy now and need to file again, you'll have to wait eight years.
Some "pros" of filing bankruptcy are:
- Your debts such as credit card debt are "discharged," or removed
- Your home, car and certain other property can't be taken to pay creditors
- You can eliminate or modify "secured debt" like a mortgage or car loan
- An "automatic stay" protects you from future collections processes such as repossession, foreclosure and utility shut-off. A creditor that violates this can be held in contempt and ordered to to pay you money for damages you've sustained from these action and for attorney's fees that may arise
- You may keep your driver's license if you were going to lose it due to nonpayment of an auto accident judgment against you
- Chapter 13 bankruptcy may save you interest charges on unpaid tax bills
- You are protected from discrimination by governmental groups or private employers. For example, a public utility can't take action against you for an unpaid utility bill nor can you be denied a student loan. You also can't be fired from your job
- You have more legal tools to challenge disputed debts with creditors
Factors Against Bankruptcy
Be sure to look at the "cons" of bankruptcy as well. Filing without knowing what's at stake for years to come could be harmful. Here are some things to consider:
- If you own nonexempt property (i.e. property that doesn't fall into the exempt category under bankruptcy law), it could be liquidated or sold to pay off creditors. Examples of nonexempt property include family heirlooms and vacations homes, to name a few
- It'll become part of your credit history for 10 years and will be part of the public record
- You could be discriminated against in spite of the protections provided by "legal" bankruptcy. Your reputation could be harmed
- Your own personal feelings about bankruptcy. But, in considering this factor, you must also weigh the hardship that your family can avoid by pursuing a bankruptcy.
- The costs of filing bankruptcy can be quite steep even if you don't have an attorney representing you. Court fees, trustee's fees, consumer counselor and personal financial management education must be paid
Put aside your personal feeling about bankruptcy and whatever you think about people who have filed. Whether or not you file is up to and your family, no one else.
Is Bankruptcy Necessary?
Only you can decide if bankruptcy is right for your situation. For many, who face problems that bankruptcy can eliminate, it might have a positive effect on their life. However, if you have a few debts, filing may be premature when it's possible to speak to a debt specialist or negotiate with your creditors.
To help you decide if bankruptcy is the route you want to take, review the Bankruptcy Worksheet for your state.
Questions for Your Attorney
- Are there ways to work with collectors safely before filing bankruptcy?
- What property can I keep if I file bankruptcy?
- When is the best time to file bankruptcy?