One of the main reasons people file for bankruptcy is because of unexpected expenses. Some of these include divorce, a mountain of medical bills, and job loss.
Some of these things can be avoided by taking a second job, budgeting, and avoiding unnecessary purchases. However, if these measures fail, filing for bankruptcy can provide relief. Be sure to consult with a bankruptcy attorney in Harrisburg, PA to help you with the legal aspect of bankruptcy.
1. It gives you a fresh start
Many people file for bankruptcy because they have debt that exceeds their income. This is usually because an unexpected event – like losing a job or a divorce – costs them lots of money, and they now have less disposable income than before. Although a person’s credit will take a hit, they get the opportunity to start over with a clean slate. If the person is considering bankruptcy, they should find a skilled bankruptcy attorney to help them through the process. A trustee will be appointed to handle communications with creditors, and almost all collection efforts are halted.
Some debts, including child support and most back taxes, cannot be erased by bankruptcy. Similarly, student loan debt is notoriously hard to discharge. Before choosing bankruptcy, it is a good idea to consult with a credit counselor and explore other avenues for financial relief. Then, the decision will be based on the best options for your specific situation.
2. It helps you get back on your feet
Depending on your chapter, bankruptcy can wipe out or substantially reduce debt and give you a chance to rebuild credit. That’s a big benefit for people who want to take back their lives after years of debt and stress.
Of course, you should carefully consider other options before filing for bankruptcy, such as debt settlement or even loan modification, and be sure to consult with a bankruptcy attorney to ensure that your decision is best for you. It is also important to avoid taking on new debt after filing and to keep your credit score high by paying your bills on time, avoiding big purchases and establishing a solid savings account.
Remember, though, that bankruptcy can’t discharge child support debt, most back taxes or student loan debt, and it will still show up on your credit report for seven to 10 years. It also may make it more difficult to get a job or rent an apartment, and some employers run credit checks on applicants.
3. It protects your assets
Most people fear that filing for bankruptcy means they will lose all of their possessions. However, this is often not the case. The moment you file, creditors are prevented from seizing your assets or garnishing your income, unless they receive permission from the court to continue or escalate their actions.
In addition, there are exemptions that protect most of your day-to-day possessions. These exemptions vary by state, but they typically include things like your car,
a portion of the equity in your property, as well as household items.
You can also keep investment property if you file for Chapter 13 bankruptcy, which allows you to roll the debt on your investment properties into your reorganized three- to five-year repayment plan. Of course, you cannot exempt second homes, luxury vehicles, extravagant jewelry or collectibles, family heirlooms, and recreational property like boats. You also may not be able to exempt your 401K or other retirement plans. The purpose of these safeguards is to prevent you from giving away your hard-earned savings in order to pay off creditors.
4. It helps you get out of debt
Bankruptcy is a legal process that lets you prove to the court that you don’t have the means to pay your debts. Depending on what type of bankruptcy you file for, it either wipes out your personal debt (Chapter 7) or creates a 3-5 year plan to repay creditors (Chapter 13).
The best part about filing for bankruptcy is that it stops all collections actions and lawsuits against you. It also stops utilities from cutting off your services and it stops foreclosures and repossessions of property.
Keep in mind, however, that bankruptcy will stay on your credit report for 7-10 years. This will make it difficult to get loans or credit cards and may affect your interest rates and terms. This is why it’s important to start rebuilding your credit right away by paying your bills on time and avoiding negative habits that contributed to your debt problems in the first place. This will ensure that you don’t fall back into those bad habits in the future.