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Advantages and Disadvantages of Bankruptcy

If you are drowning in debt, you are not alone. Many people suffer from financial difficulties. Regardless of how it happened, there is help available. Some people who qualify for bankruptcy never take advantage of this option. Bankruptcy can provide you with a way out of debt and can make your life easier and less stressful. Everyone’s situation is different, so it is helpful to discuss the option of bankruptcy with an experienced Mooresville bankruptcy attorney. Contact Arnold & Smith, PLLC today to learn about what bankruptcy options are available.

Advantages of Bankruptcy

There are some advantages to filing for bankruptcy. These include:

Stop Creditors

You may have been plagued with calls and letters from creditors. Some of these may have felt threatening. Filing bankruptcy will put an immediate end to creditor’s calls and letters. While it does not stop them from collecting their debts, it does put an automatic stay on collection efforts.

When you file for bankruptcy, creditors can no longer call you or send you collection letters. They cannot file a lawsuit to collect a debt. They cannot garnish your wages for debt collection. In addition, filing bankruptcy prevents home mortgage foreclosure and property repossession.

If a debtor does take any of these actions against you after you filed bankruptcy you may take legal action against them. Your attorney may file a contempt charge to stop their collection activities and in some cases request payment for damages.

Discharge Debts

Filing bankruptcy can sometimes discharge or cancel your responsibility to pay a debt. Some types of debts can be eliminated when you file bankruptcy. For example, some types of medical bills, utility bills, credit card debt and personal loans may be able to be discharged. Your attorney will provide you with more information about what types of debts can be eliminated through bankruptcy.

Keep Some Property

Although you file for bankruptcy, you may still be allowed to keep some types of property or assets that you own. Exemptions are a part of both chapter 7 and chapter 13 types of bankruptcies. An exemption lets you keep an asset without having to sell it to repay debt. Bankruptcy typically allows you to exempt a specific dollar amount of assets. In addition, some types of assets are automatically exempt from bankruptcy. For instance, you will usually be allowed to keep your motor vehicle and wedding ring. Other property you own may also be exempt.

Improvement of Credit Score

A bankruptcy does stay on your credit history for a period of seven to 10 years. However, as soon as you remove some of your dischargeable debt from your credit, you may begin to see an improvement in your credit. You will be able to immediately start to rebuild your credit score and begin anew. Many creditors look at this improvement favorably.

Reduce Financial Stress

One of the most important advantages of filing for bankruptcy is the reduction of stress that it provides. Financial problems can create a lot of stress and turmoil and can even wreak havoc on personal relationships. When you file for bankruptcy, a huge weight is lifted from your shoulders. You can stop worrying about your finances and start to take steps to improve your credit.

Disadvantages of Bankruptcy

While you may have some benefits from filing for bankruptcy, there are some disadvantages that you need to be aware of before you decide to file. It is important to file for bankruptcy at the right time in order to properly protect your interests. Filing too soon could cause you to lose some property that you could keep while filing too late may not allow you to save some of your property. It is helpful to discuss the matter with a qualified Mooresville bankruptcy attorney before you make a decision.

There are some possible disadvantages to filing bankruptcy. Some of these may include:

Loss of Property

While there are some exemptions to bankruptcy, not all of your personal property and real estate will qualify for an exemption. Depending on your situation and the type of bankruptcy your file, you may be required to sell some of your assets in order to pay creditors.

Negative Impact on Credit Score

Although in the long run you may have a better credit score, there will be a negative impact it at first. A chapter 7 bankruptcy will stay on your credit report for a period of 10 years and a chapter 13 bankruptcy remains for seven years. This could also cause you to have difficulty obtaining a mortgage or personal loan.

Canceled Credit Cards

Most credit card companies will automatically cancel your credit card if you file for bankruptcy. You may be offered unsecured credit cards after filing bankruptcy. While these can be useful for rebuilding your credit, keep in mind that these cards will usually carry a high annual interest rate along with annual fees.

Filing for bankruptcy can be a good option for many who have serious financial problems. If you are considering bankruptcy you will want to talk to a Mooresville bankruptcy attorney to talk about your options. Contact our skilled Mooresville legal team at Arnold & Smith, PLLC today to schedule a consultation.