If you are considering filing personal bankruptcy there are lots of things that you need to take some time to consider. Most people who decide to file bankruptcy are in difficult situations financially. They believe that their only way out is through bankruptcy and they often do not take the time to consider all the elements that go into such an important decision. If you are thinking about seeking a chapter 7 or chapter 13 settlement it is important that you do your research carefully, considering the bankruptcy pros and cons before you come to a decision. This is research that you can do yourself on the internet or at the library and that you can then clarify that research during a free consultation with a bankruptcy attorney in your area. I want to take a more detailed look at the pros and cons of bankruptcy to provide people who are considering declaring bankruptcy with enough information to help to make this important decision.

Bankruptcy Pros & Cons

One of the good things about bankruptcy law is that the rules make it so that a person can not make a snap decision to file bankruptcy. They must take some time and consider their options and whether or not bankruptcy is the best option for them considering their financial situation. In fact, since the bankruptcy reform bill of 2005, it is now mandatory that a person attend a certified credit counseling course before they are able to file for bankruptcy. This has increased individual awareness of the consequences of bankruptcy on a person's finances and credit report and, some believe, has actually decreased the number of people who choose to file.

However, it is important that a person educate themselves about the consequences of bankruptcy even before attending their mandatory credit counseling sessions. So, with that objective in mind, lets take a look at the pros and cons of filing bankruptcy beginning with the pros.

The pros of declaring bankruptcy

In the case of a chapter 7 bankruptcy your obligation to your creditors will entirely dissolved. In a chapter 13 bankruptcy proceeding you will be be assigned a repayment schedule with favorable terms. This is obviously pretty critical. If you find yourself completely swimming in debt with no way to dig yourself out, bankruptcy gives you a chance a fresh financial start. Even in the case of a chapter 13, you will be granted repayment schedules that are far more favorable to you than if you had not filed in addition to putting an end to debt collection calls and letters. This is the number one "pro" of bankruptcy.

The other advantage to bankruptcy is that you get a fresh start to build a new credit history. It is true that the record of your bankruptcy will follow you around for seven to ten years but during that time you will have the opportunity to re-establish yourself as a credit-worthy individual.

However, while the prospect of eliminating all of your debts without actually have to pay them may sound very appealing there are a number of drawbacks to bankruptcy as well. With that in mind lets take a look at the cons of bankruptcy

Cons of bankruptcy

After you declare bankruptcy, regardless of whether you declare according to chapter 7 or chapter 13, you will suffer a number of financial consequences. The main issue is that many borrowers will not lend to you right out of bankruptcy until you have re-established some creditworthiness over a period of at least 24 months. Therefore, you will have trouble making major purchases such as a new home over that time.

Additionally, even if your debt are discharged in a chapter 13 bankruptcy you may have to forfeit some of your assets in order to re-compensate your creditors for their losses. The laws that govern such a forfeiture vary from state to state, however you should be aware that a chapter 13 bankruptcy does not ensure that you will be able to shield all of your assets.

Additionally, there are costs associated with declaring bankruptcy that can be substantial. This creates a paradox in the system so to speak. You do not have the money to pay your debts, yet you must come up with money in order to complete the bankruptcy process absolving you of your debts. These costs include lawyer fees and filing fees. In some cases you may be able to successfully declare bankruptcy without retaining a lawyer, however that is not advised for most individuals. Filing costs of several hundred dollars will need to be paid.

When considering these bankruptcy pros and cons I hope it becomes clear that bankruptcy is a major decision that will have a major impact on your financial livelihood for a significant period of time. For this reason it is very important that you gather all of the facts and make an informed decision. Speaking to a bankruptcy lawyer is also strongly advised and most bankruptcy attorneys offer prospective clients a free consultation.

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