Filing for bankruptcy is not an easy decision and it can have lasting effects on your finances and credit.
However, the benefits of filing for bankruptcy often outweigh the drawbacks for those who keep accumulating debt without seeing a way to catch up.
1. Stops all collections
When you file for Chapter 7 or Chapter 13 bankruptcy, all collection efforts must stop. This means that creditors are no longer allowed to call you, wages garnishment stops and any lawsuits from creditors must stop. Filing for bankruptcy can also stop the foreclosure of your home or repossession of your automobiles. All communications from creditors must go through a court-appointed representative, lessening the immediate stress on you.
2. Wipes out or lowers certain debts
Chapter 7 involves liquidating your assets to pay your debts. Most unsecured debts, such as credit debt, get discharged completely. Chapter 13 involves a repayment plan based on your financial situation and ability to pay. As a result, many creditors must accept a reduced amount.
3. Creates a fresh financial start
Whether you file for Chapter 7 or Chapter 13, bankruptcy creates a fresh start for your financial future. With debts either wiped out, settled or organized into a repayment plan, you can look ahead instead of feeling overwhelmed by past decisions.
As you consider filing for bankruptcy, remember that bankruptcy is public record. Your credit report will include the bankruptcy for several years, which may make it difficult to obtain new loans or establish new lines of credit.