The choice of whether or not you should file for bankruptcy can be a daunting one. While it wipes away overwhelming debt, bankruptcy can also have serious effects on your finances for years. As a highly personal decision, it’s essential that you carefully weigh the pros and cons of filing for bankruptcy to determine if it is the best option for you:
The pros of bankruptcy
- Getting a clean slate: The most obvious benefit of filing for bankruptcy is the peace mind that comes with eliminating your outstanding debt. Bankruptcy gives people the opportunity for a fresh financial start, allowing you to reflect on how you got into debt and how you can avoid it going forward.
- Stopping calls from creditors: If you’re currently behind on a few payments or have had an unpaid balance sent to collections, you likely know all too well how stressful harassing calls from bill collectors can be. When you file for bankruptcy in the U.S., an automatic stay makes it illegal for creditors or collectors to contact you and try to solicit payments.
- Rebuilding your credit: While rebuilding credit after filing for bankruptcy takes time, many are grateful for the opportunity to get rid of their credit cards and start developing smarter spending habits. Many filers can get their credit score into the “good” or “excellent” range within a few years.
The cons of bankruptcy
- Loan and credit prospects: Depending on the type of bankruptcy filed, it will remain on your credit report for seven to 10 years. While it is possible to rebuild credit after bankruptcy, it can feel like an uphill battle at first. It can be challenging to qualify for new credit, loans or mortgages, as these lenders will likely see you as more of a risk.
- Filing and attorney costs: While it does eliminate your debts, filing for bankruptcy isn’t free. There’s a standard fee for filing for bankruptcy, depending on the type filed, and you’ll have to pay for the mandatory credit counseling. You may also rack up additional expenses if you decide to hire an attorney to help with your case.
- Mental and physical health effects: Even if filing for bankruptcy is ultimately the best choice for your circumstances, it’s still a complicated process to undergo. Financial debt is associated with higher depression, stress and even blood pressure – but bankruptcy can have some adverse effects on your health. While you should never feel ashamed of filing for bankruptcy, some people report feelings of failure and inadequacy.
Like most choices in life, filing for bankruptcy has its advantages and disadvantages. However, if you are in over your head in debt, the pros of bankruptcy may far outweigh the cons.