Filing For Bankruptcy Under Debt – Is it a Boon or Bane?

With regards to the debt situation as of now and the financial situation of most of the household, the bleak job market, bankruptcy definitely can be considered as a boon. But, if your credit is to be considered, you will be able to find out that bankruptcy affects your credit negatively. So, depending on your situation you will have to decide for yourself if bankruptcy actually is a boon or a disadvantage. There are various debt relief options available like debt settlement, debt consolidation or management. If you think you will be able to pay off debts through these options, it would be better to avoid filing bankruptcy.

Is bankruptcy really good?

Bankruptcy helps you to discharge a greater part of your debt. So, only if you are in serious financial problem where you really have no other way out, you can file bankruptcy. There are different Chapters under which you may be able to file bankruptcy. Chapter 7 and Chapter 13 are the two options for personal finance. Chapter 11 is for the businesses and Chapter 12 is for the farmers and fishermen.

Now, the debt amount of most of the households is so high but the income level is so low that most of the people are required to file bankruptcy. The current outstanding debt of the public is around $15,000,000,000,000. On an average, every man, woman and child in the nation currently owe $49,713 in public debt. So, it is quite obvious that for many, bankruptcy can seem to be one of the best options.

When you file bankruptcy and as it gets approved by the court, there comes in an automatic stay against all kinds of debt collection processes. Irrespective of the fact that your debts are secured or unsecured, the creditors and lenders are required to stop collecting the debt. In case of Chapter 7 bankruptcy you are first required to pass the mean test. Only if you pass the test, you can file bankruptcy under this Chapter. The bankruptcy trustee then takes away your assets to use those to pay off your creditors. On the other hand, Chapter 13 bankruptcy is more of a reorganization plan where you are required to make payments to your creditors and lenders as per the plan designed and approved by the bankruptcy court.

However, in case of bankruptcy what happens is that your credit score lowers by around 200-350 points. Furthermore, the better our credit score, the higher will be the amount by which your credit score is going to lower. Moreover, once you file bankruptcy it is going to get listed on your credit reports. Depending on the Chapter under which you are going to file the bankruptcy, it will stay on your credit reports for 7 to 10 years. In case of Chapter 13 bankruptcy is supposed to stay on your credit reports for 7 years. On the other hand, Chapter 7 is supposed to stay on your credit reports for 10 years. Now, when you will apply for any kind of new credit, the lender or the creditor will get to see that you had filed bankruptcy. Bankruptcy filing proves that you had been unable to maintain your payments and this lowers your credibility amongst the creditors and lenders.

That is, if you file bankruptcy you are going to face problems in getting new credit in future. You will have to really work hard on your credit to improve it. Only then, may you be able to get any kind of new credit.