Filing for bankruptcy is something that is not often understood by the general public. Some have the common misconception that it is a way for you to get out of debt and start over. However, the truth is much more complicated. A lot depends on what type of debt that you have, and what type of assets you have. Depending on your situation, filing for personal bankruptcy could help you out, but it could also hurt you severely.
The Pros
Filing for bankruptcy can put an end to various problems, though the details and specifics will change depending on whether you’re filing for chapter 7 or chapter 13 bankruptcy. One of the biggest benefits is that you get immediate temporary relief. As soon as you file for bankruptcy, no further action may be taken against you by your creditors until a decision in your case has been reached. Even if your case decision requires you to pay some of your creditors, you will often be protected from fines for late payments. In some cases, your debts may be canceled or reduced. However, that isn’t guaranteed.
The Cons
Depending on the decisions and agreements reached in your bankruptcy case, you could lose valuable assets. These could be items like your home, car, and other things that could be used to help settle your debts. Bankruptcy isn’t free either. You are going to have to pay fees for the court services. You won’t even have all of your debts taken away. Student debt, taxes, child support, fines, and many other financial obligations won’t be removed. Even the debts that you get relief from can still haunt you. If you have friends or family members that are cosigners on any of your accounts, your creditors will still be able to go after them and demand that they pay your debts. This will undoubtedly strain your relationships. All in all, you will be losing trust in your business and personal relationships because you have failed to meet your obligations.
How to Decide
Deciding to file for bankruptcy is going to be tough. Even though your financial situation is strained, it may be worth speaking with a lawyer and/or an accountant to help you make the decision. They will be able to give you a good idea of whether bankruptcy is going to help. Be aware that you cannot lie or fudge the numbers to give yourself a better case. Doing so is a crime and could easily cause you to end up in jail.
While bankruptcy shouldn’t be taken lightly, it isn’t something that you should avoid at all costs. If your situation is financially dire, bankruptcy can be your path to a new start. The purpose of this process is to help people to get out of nearly impossible situations. The reason that the process is so stringent and complicated is to prevent people from gaming the system.
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