Advantages of Bankruptcy

Advantages of Bankruptcy

Folks who are considering filing bankruptcy are faced with a lot of questions and are often not sure what the advantages could be, if any. Besides the obvious advantage of not having that lingering debt that hangs over their heads everyday, are there any other advantages?

There are many different aspects to consider before making a final decision. There are always options, but choosing the right option is not always easy. Below are some of the advantages that can help folks make those decisions that are right for them. The advantages are not always the deciding factor but they can sure help you make a wise decision.

Section 362-The Automatic Stay

One advantage of filing for Chapter 7 or Chapter 13 bankruptcy, is that when the petition is filed it invokes the automatic stay, which requires the creditors by law to cease all activities of collecting the debt. This means that they have to stop calling, leaving messages, or mailing you notices when they are notified of your intentions. They have to stop all garnishments, and in some instances return money that they already seized. Creditors can be penalized by the court system if their efforts continue.

Chapter 7 A "Fresh Start"

Chapter 7 bankruptcy is the better option for debtors who have little or no property, lower income and mostly unsecured debts. But chapter 7 can include both secured and unsecured debts. Unsecured debts are those like medical bills and credit cards. A secured debt is when you have decided to use collateral that can include your home, car, or other major assets you have ownership of. Chapter 7 bankruptcy is also referred to as liquidation.

Possible Disadvantages

Chapter 7 is not a perfect solution because there are some unsecured debts that do not qualify for discharge under Chapter 7 the biggest of which is most school loans. Folks who are eligible for Chapter 7 bankruptcy may be discharged or forgiven from most unsecured debts. With a secured debt the creditor is entitled to collect the debt by seizing and selling certain assets of the debtor if payments are missed. Or you may have the option, if not to financially burdensome, to reaffirm the secured debt and keep that asset.

Chapter 13

Chapter 13 bankruptcy provides a better solution for those folks who have a regular income, secured debts and do not which to loose their property. Chapter 13 bankruptcy allows the debtor to submit a plan, to the bankruptcy court to repay the debts over a three to five year period of time. This means the person does not have to lose ownership of the items used to secure the debt. Each individual’s situation is different though, and must be evaluated before deciding which type of bankruptcy is right for their particular situation.

Pre Filing Credit Counseling and Debtor Education Courses

When someone decides to file for bankruptcy, whether it is Chapter 7 or Chapter 13, they are required to take two courses a pre and post filing course. The consumer is required to take a course pertaining to credit counseling prior to filing the case and debtor education course after filing and before discharge. This is an advantage that not only helps you figure what had went wrong, but it will also help you find new ways of budgeting, paying bills, and spending your funds so that you do not run into the same financial difficulty in the future. The courses also teach you how to protect yourself against identity theft and also how to read and monitor your credit report. Today, most, if not all companies that offer these courses offer them online for quickness and convenience.

Employment After Bankruptcy

Folks that are concerned about being dismissed from a job due to the fact that they are filing bankruptcy should not be worried. Another advantage is that employers are not allowed to dismiss an employee based upon the fact that they, the employee, are filing bankruptcy. Keep in mind, however, that it may affect your ability to obtain new employment for a few years after filing bankruptcy.

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Bankruptcy Tips - Some Rebounding Tips After Chapter 13

So you have filed for Chapter 13. What’s the next step? At first blush, you are full of ideas on how you are getting a fresh start. You have freed yourself from almost all of your debts and you are, financially speaking at least, a new person. But note that by filing for bankruptcy, you are sacrificing some short term freedom. In exchange for a discharge of your debts and stopping your creditors from pursuing any collection actions against you, your credit rating will stagnate for at least a year. Considering how your credit rating was probably not all that great to begin with, but this stagnation has a bright side.

Let’s start with the bad news:

• The bankruptcy will stay on your credit report for up to 10 years.

• Lenders will want at lease a year to have passed before you go on any major loan acquisitions.

• As a consequence, you may not be able to get a loan or a credit card for some time after the bankruptcy.

• And if you do get lucky and get approved for credit, the interest rates and fees attached will be rather punishing.

The silver lining. Your credit score will increase by at least 125 points within one year of completing your bankruptcy and getting a discharge you just have to think positive. It is good that you are restricted from getting new credit. Your debt is what caused your bankruptcy in the first place. They will have no difficulty getting you in that place...again. Now, for the rebounding tips to help you climb back up from the pits of bankruptcy:

Lead a Frugal Lifestyle: Common sense dictates that you lead a simpler lifestyle properly slimmed-down, no frills attached. In other words, be frugal. If you filed under Chapter 13, it means that you have signed up for a repayment plan to pay off some of your debts. The purpose of Chapter 13 is to allow debt reorganization so that you can continue holding on to your properties and other assets in exchange for obliging yourself to pay your debts for a certain number of years. The bottom line, therefore, is that you are still in debt, albeit, you may only pay a portion of the total debt to your creditors.

The the length of a Chapter 13 is three to five years. During this time, the court allows you only a set amount to live on while the court-appointed trustee divides the rest among your creditors each month. What does this mean to you?

As mentioned above, it means a no-frills lifestyle. No luxuries whatsoever, except those exempted under the law. And sometimes, just sometimes, it may also mean changing your basic expenses, such as how much you pay for shelter and groceries every month. You may even have to move to a cheaper apartment or a more low-end neighborhood just so you can get by with the amount the court allows you. Suffice to say that getting new credit will be challenging. So you can forget about getting a new credit card or a car loan. Or at least, getting it the easy way. Besides, you can’t take on a new debt without the court’s permission anyway, and getting that means adding an awful lot of complexity in your life.

So how do you go about with barely anything to tide you over through the hard times ahead? It’s simple really – make a budget. Better yet, keep a close watch on your expenses for three months and make a budget based on any observations you have made on your spending habits. This is exactly what Greg McBride, CFA, senior financial analyst for Bankrate.com advises:

Track your expenses for three months to get an idea of how much you’re spending and where that money is going. Then create a realistic budget that fits within your monthly income, he says. 'The first step to saving is to set boundaries on your spending. And after making a budget, stick to it. That’s the most important part.