Declaring bankruptcy, filing for bankruptcy, call it what you will, it is traumatic, agonizing and extremely difficult to cope with. Bankruptcy will affect your credit rating, relationships and lower your own self worth considerably, so think long and hard about your decision to file. It is not something you wake up one morning and decide to do. The short term benefits are really peace of mind from your creditors and possibly saving your home or car from being repossessed.
Bankruptcy or personal liquidation is to be considered debt management of the last resort; its tentacles are far reaching and the effects extremely long lasting. No one wants to undergo a major surgery if they can avoid it, think of liquidation in the same light.
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This article has covered the pros and cons of filing for insolvency and this will help you make an informed decision should the need arise.
The pros
o The filing for insolvency puts a freeze on any collection action by your creditors; no foreclosures and repossessions. When you file through an attorney, the attorney will act on your behalf, handling all inquiries from creditors. Once you file you will probably have the first good night's peaceful sleep in a long time!
o Each state has its own laws for filing but most states have an across the board policy that will allow you to exempt the car, home and certain other essentials; the reason being, you should not end up homeless and unable to move around. It is understood by the court that you need a place to stay and a car to move around in to be able to start a new life.
o Once you file for insolvency, you can begin to rebuild your credit standing, get a job maybe and start to rebuild a new life for yourself. Should some other financial disaster occur, you are allowed to amend the Chapter 13 filing to include it under the same umbrella.
o Student loans are not part of your filing and will have to be paid off; the upside is thanks to your filing your creditors cannot use hard line tactics to collect from you. Moreover they will have to go through your lawyer to get to you.
o Interest rates on any term loans you have outstanding, like mortgages can be lowered, because they can be amended to reflect the current property value, when you file under Chapter 13.
The cons
o All your credit cards will be closed unless you manage to pay them before the filing is done. You stand to lose some of your luxury goods as well. Life as you knew will change so prepare your self.
o Once you file for insolvency, there is no way you can secure a mortgage loan; it will take at least 5 years before you become eligible for one.
o When you file it goes on your credit report and stays there for 10 years before the record is wiped clean. During this time acquiring any kind of credit, buying property, an automobile, insurance and even getting a job will become very difficult.
o When you file, you are admitting defeat and your name will be in the court records and also appear in the newspapers.
o Explaining to the judge or court official how you landed in a mess financially, will probably be extremely embarrassing and difficult. Moreover, the courts have heard every hard luck story in the book and really have no sympathy.
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