No one ever plans to get in over there head with debt. Sadly, it happen sometimes; numerous medical bills, house going under water with the mortgage, college debt, or even having to pay out over a large law suit. For whatever reason you have a substantial debt to eliminate. Does that mean declaring bankruptcy is in your best benefit? There are a number of things to consider before you declare chapter 7.
List of Pros of Bankruptcy
1. One of the biggest benefits from filing for bankruptcy is the elimination of all or most of a debt you may possess. While it takes a couple of months for everything to be said and done you will have eliminated any substantial debt that could be causing you problems. While this isn’t an extensive positive it is a big one. Debt is a major stressor in a lot of people’s lives. For most Americans just keeping food in the fridge and a roof over their heads is hard enough. Add on top of this one or multiple debt that needs to be paid off and a person can get in over their head quickly.
2. Most of the debt for people is credit card debt. Despite what a lot of people believe that it’s from credit card misuse, in all reality most credit card debt is accumulated from having to pay bills when someone doesn’t have the money directly to pay it. With interest rates and continued use it snowballs beyond the control of the person. This is especially true in our currently oversaturated job market with pay rates on average below the cost of living. Many of these people have to have multiple jobs just to survive let alone be able to pay off a debt. This is no truer than in the case of student debt.
From preschool all the way up through graduation most students are pumped full with the notion that you have to attend college unless you want to be doomed to low end jobs the rest of your life. Sadly, this brainwashing has caused student debt to grow at an exponential rate over the years. Combine this with the fact that most students do not fully understand that the loans need to be repaid once they graduate from college. Especially in this day and age where a college degree does not so much guarantee a job as it is all but useless in the current job market. However, with all this student debt and less and less jobs and money going around the debt continue to place substantial burden on college graduates. By filing for chapter 7 you can elevate some if not most of your debt including student debt; if you meet the requirements of course.
List of Cons of Bankruptcy
1. While alleviating your debt is a major benefit for filing bankruptcy it does come at a great cost. The biggest part of filing for bankruptcy is that it will destroy your credit rating for at least 7 years. In this modern society your credit rating is one of the most important things you can have. It can affect the type of housing you can get, the possibility of getting a loan, even some jobs require a good credit rating. Damaging your credit rating can have life lasting effects.
2. Also, when you file for bankruptcy any assets or belongings you have can be auctioned towards paying towards the debt. Things like cars, property, stock, savings accounts, televisions, etc. will be used to pay down the debt. In some states personal belonging are allowed to be kept but if you reside in one of those states that it does not you may end up losing a lot more than just a few items. Additionally while you can use bankruptcy to remove student debt it can be a lot harder than just filing chapter 7. If you are allowed to lump student debt into your bankruptcy you typically have to prove that the debt poses an undue hardship on you and/or your family. In the event that you cannot prove this you are still stuck with the student debt after the bankruptcy. Also there is a minimum of 6 years between bankruptcy filings. In the event of some unforeseen problem coming up you will not be able to file for bankruptcy again until the minimum time has passed.
Filing for bankruptcy is no easy decision. While having to juggle debt with various bills and other living costs may be a struggle that you currently cannot win. In these cases bankruptcy can be the best thing for you; however, there are some heavy costs. Whether the benefits outweigh the costs depends on your particular situation. Ultimately it is up to you to judge whether it is the right decision.