The Pros and Cons of Filing for Bankruptcy

Although it tends to have a negative connotation, did you know that there are actually benefits to filing for bankruptcy? Of course, this varies from case to case, but we believe it’s important that you understand bankruptcy isn’t always something to run away from. Below are some pros and cons to filing for bankruptcy, so you can better make a decision as to whether you should file or not. 

Pros to Bankruptcy:

  1. After filing for Chapter 7 bankruptcy, the process of getting out of debt only takes anywhere from 3 months to half a year. Even though there will be a mark on your record for awhile, you’ll be relatively debt free in a short period of time. The trade-off may be worth it for you. 
  2. In most situations, many of the things you already own will be exempt from bankruptcy. 
  3. If you’d like to rebuild your credit, applying for bankruptcy can make it a reality sooner. Although interest will be high, you may be able to open a new credit line within 1-3 years after filing for bankruptcy.  
  4. You don’t need a specific amount of debt to file for Chapter 7 bankruptcy.  

Cons to Bankruptcy: 

  1. The effects of filing for bankruptcy could remain on your credit report for up to a decade. We don’t have to tell you that this is a long time to deal with the implications. Be sure that filing for bankruptcy is absolutely necessary and the right thing to do before going through with it. 
  2. If you file for Chapter 7 or Chapter 13 bankruptcy and it is completed, you cannot file for Chapter 7 for another 6 years. If something else puts you in a financial crisis during that time, you will not be able to rely on Chapter 7 as a financial solution. 
  3. All of your credit cards will be lost.
  4. You will have to tell people (a judge, lawyers, jurors) how you ended up in your financial situation. This may be a very uncomfortable process for some, but in most cases, it’s a small price to pay for a system that ultimately helps. 

How Nondisclosure (And More) Can Be Interpreted as Fraud

When it comes to filing for bankruptcy, honesty is the best policy. 

It’s fair if you don’t want a lot of people to know you’ve filed for bankruptcy. The thing is, though, filing for bankruptcy informs people to some extent. You’ll have to be prepared to share about your financial situation, and while it may not be shared with those whom you are acquainted with, you’ll at least be telling a court, its personnel, your lawyers, and creditors. From there you can choose to tell those you’re closest to, but that is completely up to you.

Because you’ll be informing these people about your finances, you may be tempted to tell a white lie or leave some details out in order to make your situation sound better. In the case of bankruptcy, though, your best bet is to always tell the truth. Complete transparency is a part of remedying the problem — not to mention, a lie could be interpreted as fraudulent. Besides, withholding or altering information to save face, there are other things that can be interpreted as fraud in a bankruptcy case, no matter the intentions of the action. Avoid the following and you won’t face the consequences of fraud, which is a federal offense. 

Avoid New Debt

Clearly, you shouldn’t be increasing your debt, but it doesn’t mean it hasn’t happened before in a case. If you file for bankruptcy and open a new credit card, take out a loan, or make some unusual and unnecessary purchases, it can be stated that you did this without the intention to pay it back — fraud. When you run up this debt, it won’t be covered by the bankruptcy case; you will still have to pay this portion back in full. 

Avoid Large Transactions Out of Fear 

Pay bills, but other than that, don’t make unnecessary transactions. Those filing for bankruptcy may incorrectly assume it’s better to transfer money to family members in order to maintain their assets. They may also be tempted to transfer titles or remove themselves from businesses they own. All of the above is considered fraudulent. 

Atwood & McVay

The Law office of Atwood & McVay in Nashville, TN can help when you find yourself in a financial situation and in need of a bankruptcy lawyer. Reach out to us today. 

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