Most people feel a strong aversion to the idea of filing bankruptcy. It likely offends their sense of responsibility and makes them worry about their financial future. Quite a few people believe myths about bankruptcy, like the common claim that those who file have to give up all of their personal property.
There are some negative aspects to bankruptcy. Bankruptcy will limit your credit opportunities in the near future and will also leave a blemish on your credit report for seven to 10 years after discharge, but the benefits far outweigh the inconveniences associated with bankruptcy. You will typically have to choose between liquidating some of your non-exempt property and completing a very strict repayment plan.
For those who have more debt than they can reasonably expect to repay, bankruptcy can give them a fresh start and a chance to preserve their most valuable assets. What are the two biggest benefits that motivate people to file for bankruptcy?
The automatic stay
The timing of someone’s bankruptcy is often the result of serious debt collection efforts. A creditor may have filed a lawsuit, or the individual considering bankruptcy may have missed a mortgage payment, making them worry about foreclosure.
When someone wants to avoid aggressive collection activity, filing for personal bankruptcy is a smart move. The automatic stay that the courts grant immediately puts an end to pending collection efforts, including lawsuits and collection calls. Although creditors can go to court and ask to lift the stay, you will have immediate protection the same day you file.
The discharge of unsecured debts
While being able to answer your phone without fear again is absolutely beneficial, ending your obligation to repay your credit card balances, medical debts or other unsecured debts will be a much more profound relief.
When the courts approve and finalize your bankruptcy, you will receive a discharge of your included unsecured debts, which means you won’t face any future collection activity for those debts and have no obligation to pay them off even if your financial circumstances improve.
The combination of the automatic stay and the discharge of certain debts can serve as a powerful financial reset, allowing someone to rework their budget and regain control over their finances. Filing for personal bankruptcy is often not an easy choice to make, but it can help you when your debt has reached an out-of-control point.