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What You Need to Know About Bankruptcy: Part 1

What You Need to Know About Bankruptcy: Part 1

Filing for bankruptcy is a legal process that can help keep creditors at bay while allowing borrowers time to rebuild credit. Bankruptcy offers legal protections for individuals and businesses so that they can have a chance to rebuild their finances over time.

This process can be a lifeline when you’re drowning in debt. Like any legal process, it can also be complicated. In order to decide if bankruptcy is an avenue you should pursue, it’s important to have a general understanding of the basic pros and cons of the process.

After all, debt can be merciless. Interest rates on credit cards and other consumer debt is at an all-time high. Student loans are decimating individuals’ ability to build a sound financial foundation. High unemployment, student loan debt, and an unforgiving economy can result in spending spiraling out of control.

While bankruptcy is not a legal process to enter into lightly, it can be a lifeline when you really need it.

Basics of Bankruptcy

How to File for Bankruptcy

Bankruptcy cases follow federal rules outlined in the United States Bankruptcy code. While you do not need to have a licensed attorney to initiate a bankruptcy filing, the process will go much smoother if you have appropriate legal counsel. After all, this is a process that involves wiping your financial slate clean, and touches your assets, credit history, and financial reputation.

Bankruptcy Court

While bankruptcy cases are heard in specialized federal courtrooms, you may never see the inside of an actual courtroom. Your attorney will file the necessary paperwork and counsel you as to the pros and cons of your decision to file.

Erase the Stigma

Many people find themselves in financial situations they had not anticipated. Compounding interest rates, lost jobs and wages, and catastrophic illness are just a few of the possible reasons that people need to file for bankruptcy.

As you might imagine, the decision to enter into a bankruptcy filing is not one to take lightly. Here are some of the more common pros and cons of bankruptcy:

Pros

  • Filing for bankruptcy can help you get a fresh start
  • Bankruptcy offers legal protections to prevent creditors for harassing you
  • You’ll have chance to rebuild your credit score over time
  • Once your credit improves, you’ll be able to secure competitive rates for home loans, car loans, rental agreements, and other financial products

Cons

  • Bankruptcy filings stay on your credit record for seven to ten years. During that time, it will be difficult to secure a mortgage, car loan, rental agreement, or other form of loan
  • You may have to liquidate some or all of your assets and start building wealth from scratch
  • Not all debt can be erased by filing for bankruptcy

In our next post, we’ll cover different types of bankruptcy filings.