From BudgetPlanners.net – Personal bankruptcy is not like business bankruptcy. It permits an individual or married couple to get rid of burdensome consumer loan incurred for the household or for personal purposes. Personal bankruptcy can be of two types, chapter 7 and chapter 13, which indeed allows individuals to start a new financial life.
Most people assume personal bankruptcy is appalling. However, this is not true. Personal bankruptcy has its pros and cons, which are mentioned below.
Pros of Personal Bankruptcy
No more harassment from creditors
The people who are unable to handle their debts are pressurized from credit collection companies to pay their debts. The pressure on the debtor can sometimes become unbearable. However, once the debtor files for bankruptcy, all harassment and pressure from the creditors stops at once. Moreover, all further communication and settlement related to the debt take place only between the bankrupt’s trustee and the creditors.
Discharge from debts
The main reason people file for bankruptcy is to get a discharge from unsecured debt. After filing for bankruptcy, the debtor becomes free from paying all of the unpaid balances that would have been collected after selling their assets by the liquidation process. It also allows the borrower to become better at managing future finances.
Quick and short process
Personal bankruptcy doesn’t last forever. Most people have a wrong perception in mind that once they get bankrupt, their credit profile suffers forever. Personal bankruptcy cases finish relatively quickly. In most of the cases, debtors get a discharge in just nine months.
Cons of Personal Bankruptcy
Doesn’t discharge all of the debts
Sadly, bankruptcy doesn’t get rid of child support, alimony, some student loans, and fines. Moreover, it doesn’t deal with various debts such as mortgages and other such loans.
Might suffer loss of non-important assets
Bankruptcy doesn’t necessarily liquidate all your assets, but you might suffer the loss of some of the non-essential ones. If you have non-exempt assets, investments, or even equity in your home, the debtor’s trustee will first assess the whole value and then distribute the proceeds to the creditors. During the bankrupt period, you might also lose your tax refunds.
Negative impact on your credit
Unfortunately, your credit image does get a little affected for some time but not forever. A record of bankruptcy will sadly appear on the credit reports for six years, even after you get discharged from the bankruptcy. More unfortunate news is that you might also lose all of your credit cards and find it hard to get new ones.
Might impact employment consideration
If you are in charge of trust funds and money, declaring bankruptcy might have an adverse effect on your employment as well. Moreover, while you are bankrupt, you are prohibited from being the director of your company.