When you are facing the possibility of filing a bankruptcy it is of utmost importance that you understand that there are pros and cons with filing any type of bankruptcy. Certainly the truth does not need to be sugar coated, but there are some debt consolidation agencies, debt collectors and creditors that will plant great fear and trepidation into the hearts of people in financial distress and steer them away from what could be a very viable option for them to rebuild credit or actually become financially sound in the future.
As a psychology major and counselor, I usually try to begin painting the picture with the pros and enumerating ideas that my client may not have realized as viable options. Most would say that there really can’t be ANY positives to filing a bankruptcy; however, there are literally millions of former filers out there that would tell you otherwise.
The Pros of Bankruptcy
Bankruptcy Provides Relief
The phrase “You have to do what brings you the most relief,” has probably been my personal keynote phrase since I began counseling clients regarding their financial situations more than 25 years ago. I like to break a person’s situation down into two primary categories as it relates to both chapter 7 straight bankruptcy or chapter 13 debt consolidation. If a chapter 7 straight bankruptcy is filed and you are able to make mortgage payments and car payments but by discharging all of the other debt, you will likely find that you benefit greatly in not trying to figure out which debts to pay $10 or $25 on each month and never see the balance go down. There’s the RELIEF! You are able to pay down the critical debts and get rid of the other debts. It will likely help you budget your money better each month, and will certainly help clear your mind.
However, if you are behind on mortgage payments, or you have a very high interest rate on a vehicle and/or are behind on your car payments, often times we can formulate a chapter 13 debt consolidation plan wherein you are able to reorganize your entire financial picture, keep the things you need most, you will not lose the things you have worked hard to get, but also have breathing room and a better picture of where your money is going each month. And you have a finish line ahead to move towards…….there’s the RELIEF!
Bankruptcy Helps You Save for the Future
Most do not realize that by filing either type of bankruptcy, they are able to begin saving money for their future. If they file a chapter 7 straight bankruptcy, they can now start using even $10 or $25 that was going toward bills to put in a savings account to be able to use for car repairs, tires (because you always need 4 tires, not just one, it seems), even for a down payment on a home in the future.
The same principal applies to chapter 13 debt consolidation plans because you now have a set amount each month that is being paid toward your bills and you are in control of the rest of your money. In a chapter 13 scenario you can save for emergencies, insurance deductibles (heaven forbid you have a fender bender), dental bills, etc.
In both chapter 7 and chapter 13, I always like to point out that often times people begin to realize that they actually have money that they are able to dedicate toward giving to their church, charitable organizations, even others in need. You can never go wrong with generosity. (One of my favorite Proverbs is “The world of the generous grows larger and larger, but the world of the stingy grows smaller and smaller.”)
Cons of Bankruptcy
A bankruptcy filing will be on your credit history for a period of up to 10 years.
Ok…..that’s pretty much it, in my opinion. Most people believe that they will not be able to get any credit at all for 7 to 10 years! NOT SO!!!! That is erroneous information. Most find that credit can be reestablished within 2 years if not sooner!! WOW!!! Now that’s pretty good news to me! You lose most of your debt if you file a chapter 7 and you are able to reestablish credit pretty quickly. If you file chapter 13, you will be able to begin reestablishing as soon as you are discharged. Even so, if you are saving money during that time, you can operate on a cash basis and most people find that they really don’t want a lot of credit after either type of bankruptcy.
Our main priority is to help people to see that there is hope in their future. For most, the PROS for filing a chapter 7 straight bankruptcy or a chapter 13 debt consolidation plan far outweigh the CONS. Contact any of our offices for a free consultation with an experienced bankruptcy attorney. We are happy to help provide answers your questions even if your best option isn’t bankruptcy.
Suzanne Shinn is a shareholder of several of the Bond & Botes Law Offices throughout Alabama and Mississippi. She holds a Bachelor of Science from the University of Alabama, Birmingham, and a Juris Doctorate from the Birmingham School of Law. She joined the Bond & Botes team in 1992 as its first associate attorney and has been helping clients navigate the bankruptcy process ever since. Read her full bio here.