Bankruptcy is a live changing event and should never be done without great thought and care. Although bankruptcy may seem like the perfect solution it can also cause lots of stress on you. To help you really
think about this and help you decide whether it is the right thing for you to do I have created this going bankrupt pros and cons list for you.
Going Bankrupt Pros
-Get rid of your debt
Probably the reason most people file bankruptcy and the thing I would consider the #1 pro to filing bankruptcy. Paying off debt can be rewarding but it can also be a great struggle and if you have really gotten yourself in over your head then it may seem nearly impossible.
-An end to creditor calls
If you are getting those dreaded collector calls then filing bankruptcy will put an end to those….or at least it should. Once you have filed for bankruptcy it is illegal for the collectors to call you; so if they do kindly notify them you have filed. If they continue to call then start getting mean and let your lawyer know.
-A financial new beginning
Filing bankruptcy and absolving your debt means you will no longer have all the minimum payments that were chocking you. This means, as long as you do it right, that you can begin saving more and building yourself a financial life that you and your kids can be proud of.
Going Bankrupt Cons
-Bankruptcy doesn’t always mean you’ll be free of payments
Your debt will only be completely eliminated if you qualify and file for a Chapter 7 bankruptcy, which thanks to laws that President Bush put in, is much more difficult to do. If you file for Chapter 13 then the courts will look at your finances and require you to pay a certain amount each month for 5 years! They will also take your tax returns and any other sum of money you may get like an inheritance.
-Some debts are not covered in bankruptcy
There are some debts that you can not get rid of through bankruptcy. Student loans can never be bankrupted on, so if the majority of your debt is that then you really may not want to file. Also any debt that has a lien on something can not easily be bankrupted on, most commonly vehicle loans and mortgages. If you have a vehicle loan and can afford the payment and want to keep the car, then you will need to work with you lawyer and bank to reaffirm the loan, which will allow you keep the car but still be required to pay the loan. The same goes for the mortgage but it can sometimes be a little more difficult and take quiet a bit of time for the mortgage company to send the paperwork that will reaffirm the loan. If you have any title loans on your car out there or signature loans where you put your house as collateral then those loans will also need to be reaffirmed and paid or you will be required to sell your house. Also if any of your debts are to family members, especially with no contract, you can’t always bankrupt those and you probably wouldn’t want to since it would create a large rift between you and the family.
-Damages your credit
Now I’m not one who really cares about my credit, in fact my husband and I are hoping to get out of debt and then after a year or so our scores should be 0. However, many people do worry about their credit scores and a bankruptcy will destroy your credit. I have seen people with scores as low as 100-200 after a bankruptcy. Usually your credit will start to get better about a year later and within 3-4 years getting credit for a car or home won’t be impossible but you probably won’t be able to get the best interest rates.
-Getting a job may be more difficult
Many employers are pulling credit reports before considering you for employment. If you have a bankruptcy on your credit, especially if it’s recent, many employers will not hire you. Also if your work is in the financial industry some employers will even fire you, demote you, or put you on probation after a bankruptcy.
-Your car insurance will probably go up
Car insurance increases as your credit goes down. So if you have decent credit now and file bankruptcy then it is likely your car insurance will go up10-50%.
-Filing bankruptcy will leave emotional scars
Many people don’t realize how difficult it can be on your emotional and mental state to file bankruptcy. During and after filing many people feel a sense of failure and hopelessness. There are also quiet a number of people who become depressed and need counseling and even medication to help them get out of the funk.
-You will never be free from the bankruptcy
This to me is the absolute worst con of filing for bankruptcy. Your credit will no longer show that you filed after 7-10 years, however many applications will ask whether you have ever filed bankruptcy and you have to answer yes. It does not matter if it no longer shows on your credit report, if they ask, you are legally required to answer yes, and most financial applications ask.
I hope you can look at these going bankrupt pros and cons and come to the decision that fits you, your family and your situation best. For my husband and I we chose not to file, it was a hard decision since we have two kids (and now another on the way) but we decided, in the end, that we felt better about working hard and paying down our debts instead. It has been difficult and we have been working hard for over a year, including my husband taking a second job, my starting a daycare and really cutting our lifestyle but now instead of being in the red each month we have around $600 a month to put towards are massive-feeling debt load.