Benefits Drawbacks Filing Bankruptcy

The Benefits and Drawbacks of Filing Bankruptcy

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Benefits Drawbacks Filing Bankruptcy

Whether you are a businessman or an individual, there is always a risk in business and personal finances. You can control a few things but others not. Nobody wants that/she declared bankrupt or debtor. All people want to see growth in their businesses, personal finances, and jobs. But some happening in business and life can fall you into bankruptcy. Bankruptcy is a legal process that allows common people or businesses to get rid of their debts when they cannot pay them back.

Some of the common causes of bankruptcy are: –

  • Losing a job and having no income or health insurance
  • Having high medical expenses that exceed your income
  • Divorce or Separation
  • Owning a home that you cannot afford to pay the mortgage or taxes on
  • Spending more than you earn and accumulating debt
  • Lending money to someone who cannot repay you
  • Loan or Investing more than having
  • Insufficient cash flow

Bankruptcy can have serious consequences for your credit score, your assets, and your future financial opportunities. There are different types of bankruptcy, depending on the situation and the goals of the debtor.

  • Chapter 7: Liquidate assets to pay unsecured debts.
  • Chapter 9: Municipalities
  • Chapter 11: Reorganize business or individual.
  • Chapter 12: Family farmers.
  • Chapter 13: Repay debts with a plan.
  • Chapter 15: Foreign cases.

Benefits of Filing Bankruptcy

One of the main benefits of filing bankruptcy is that it can stop creditor harassment and collection actions, such as lawsuits,  foreclosures, repossessions, wage garnishments, and utility shut-offs. Bankruptcy can also protect some of the debtor’s assets from being seized by creditors, depending on the type and amount of exemptions available in the state where the debtor lives.

Bankruptcy can also help the debtor to get a fresh start by eliminating or reducing some of the dischargeable debts, such as medical bills, credit card debts, personal loans, and some taxes. Bankruptcy can also improve the debtor’s credit score in the long run, as the negative impact of bankruptcy fades over time and the debtor can rebuild credit by making timely payments on new debts.

Drawbacks of Filing for Bankruptcy

One of the main drawbacks of filing bankruptcy is that it can damage the debtor’s credit history and reputation for up to 10 years, making it harder to obtain loans, credit cards, mortgages, insurance, employment, and housing. Bankruptcy can also result in the loss of some of the debtor’s property, especially if the debtor files Chapter 7 bankruptcy, which liquidates the debtor’s non-exempt assets to pay off the creditors.

Bankruptcy can also affect the debtor’s tax liability, as some of the debts that are forgiven or canceled may be considered taxable income by the IRS. Bankruptcy can also have emotional and psychological effects on the debtor, such as stress, guilt, shame, and depression. Many businessmen didn’t file for bankruptcy and now living in foreign countries to escape from facing lawsuits and return debt. However, bankruptcy is a serious crime when you take money and assets from others and don’t return them as per promises.


Bankruptcy is a complex and serious decision that should not be taken lightly. Bankruptcy can offer some advantages to the debtor who is struggling with unmanageable debts, but it also has significant disadvantages that can affect the debtor’s financial and personal life for years to come. Therefore, the debtor should carefully consider the pros and cons of filing bankruptcy and explore other alternatives, such as credit counseling, debt consolidation, debt settlement, or budgeting, before filing. The debtor should also seek professional guidance from experienced bankruptcy lawyers or financial counselors who can advise the debtor on the best course of action for their specific situation.

Nancy Garcia Author

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