Benefits of Bankruptcy

Declaring bankruptcy should never be considered a cure for all financial ills. It is a potential course of action that might prove to be beneficial when a person or company becomes enmeshed in a high debt situation combined with an inability to pay these debts. Should you declare bankruptcy, you will be given a fresh start, in a financial sense, but there are consequences. The report of the bankruptcy will stay on your credit file for up to ten years. Your bankruptcy is a public record and not protected by privacy laws. Should similar problems reoccur, you will be prohibited from seeking bankruptcy protection until eight years have passed since your prior discharge.

Stop Foreclosure On Your Home

Filing bankruptcy will temporarily cease any foreclosure activity on a home. If you file a Chapter 7 action, the protection will only last a short time depending on your equity position and the homestead provision of the state in which you file personal bankruptcy. Should you file a Chapter 13 petition, you will not only stop foreclosure but probably save your home. Since you will be making arrangements to pay a portion of your balances due on your unsecured debt and, probably, paying debts in full on secured loans, you should be able to keep your home.

Claim Bankruptcy To Save Your Car

When you face repossession of your auto or other personal property on which creditors have a valid lien, filing bankruptcy will temporarily cease repossession activities. Should your property have already been repossessed, you could get it back, if you file immediately. Filing a Chapter 13 bankruptcy should allow you to keep your auto or property. A Chapter 7 filing will protect your property for a while but, depending on state statutes, you may be forced to turn it over to the trustee for liquidation.

Reduce Or Eliminate High Medical Bills

Should you, or a family member, develop a serious medical condition, of which some or all the costs of treatment are not covered by health insurance, you may not have the ability to pay the resulting mammoth debt. Declaring bankruptcy may allow you to have these high balances erased to save your future financial stability.

For instance, you have health insurance coverage but your policy has a rather low “lifetime maximum” benefit. You develop a serious illness, say non-Hodgkin’s lymphoma, which requires both immediate and longer-term treatment. After you finish your treatment, you’re feeling better until you find out that you personally owe over $350,000, since your maximum benefit amount was not enough to pay for your care. With no way to pay this debt, you may consider filing bankruptcy as your best solution.

Loss of Employment

You had an excellent job but your company was sold and you are now unemployed. Unemployment compensation is not enough to permit you to pay your debts as agreed. You also have a medical condition, say diabetes, that requires consistent treatment and medicine, neither of which you can now afford. You calculate your “new” budget and learn that if you could erase your current debts, you would have enough income to live and purchase your medicine and treatment. You realize that declaring bankruptcy is the best option for you in this situation.

Stop Creditor Harassment

Constant harassment from creditors and collection agencies can take a severe psychological toll on many people. Filing a petition in bankruptcy court creates an immediate “automatic stay”, which prohibits creditors from continuing current collection activity or initiating any new actions. One of the prime benefits of bankruptcy is the protection you will get from your creditors. Regardless of whether you choose Chapter 7 or Chapter 13, creditor calls and letters must cease right away.

Reorganize Large Balances on Student Loans

While this reason should not be a “first choice” for you to declare bankruptcy, it will work. Student loans are no longer “dischargeable” unless you can prove “substantial hardship.” The code defines this as “the debtor cannot maintain a minimally adequate standard of living and repay the loan.” This standard is very difficult, if not impossible, to prove. But you still have two choices:

First, you could file a Chapter 7 liquidation petition. While you could not discharge your student loans, you might find that, by erasing most of your other debt , you would now have enough free cash to make your student loan payments as agreed.

Second, you could file a Chapter 13 action (wage earner plan) that will allow you to restructure all debt, including student loans. While you cannot be fully discharged from these obligations until paid, this bankruptcy action will, at the least, allow you to restructure your debt into manageable monthly payments.

Also, be aware that the recent bankruptcy reform act (2005) also mandates that, in addition to government-backed loans, private student loans are also now non-dischargeable.