What are the advantages and disadvantages of filing a bankruptcy?
Bankruptcy is a legal process that is designed to help "unfortunate debtors" find a way to resolve their financial problems. When considering the filing of a bankruptcy it is important that you have a good understanding of the advantages and disadvantages associated with a bankruptcy. In an effort to help you understand the process better, here is an overview of the key things you should be aware of prior to the filing of a bankruptcy:
Advantages of bankruptcy
- Least costly way to deal with your debts
- Often can be completed in as little as 9 months
- Eliminates most of your unsecured debts
- Harassment from creditors stops
- You do not need to know the exact amount of what you owe
- Usually the impact on your credit is not significantly worse than your existing credit rating
- Protects your unencumbered assets
- Reduces your stress because you know your debts are resolved
Disadvantages of bankruptcy
- Negative impact on credit, which will make it harder for you to borrow money
- Non-exempt assets must be surrendered to your trustee
- You must keep receipts for all purchases and file a monthly statement with your trustee summarizing your expenditures
- You lose tax refunds for the year of bankruptcy and any prior period
- All credit cards must be destroyed
- Certain debts survive a bankruptcy (i.e. maintenance, alimony, court fines or penalties, student loans in some circumstances)
- When in bankruptcy, you cannot borrow money without disclosing that you are bankrupt
- You cannot be a director of a limited company
Bankruptcy may help you solve your debt and money problems; but remember, there are other options as well. Prior to making any decisions you are always best to schedule a meeting with a licensed trustee and they will look at your situation, explain how bankruptcy operates, some of the other options to bankruptcy and help you to find the solution that will work best for you.
