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Filing for Bankruptcy: The Pros and Cons

Friday, August 15, 2014
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If you're considering filing for bankruptcy, you might feel like you've hit rock bottom. Not being able to pay your debts is stressful and anxiety-inducing, to say the least. Depending on your situation, filing for bankruptcy could help restore your peace of mind and start you on the road back to financial security.

Like every other financial option, bankruptcy has both pros and cons that you need to weigh carefully before deciding if filing is the best route for you.

Bankruptcy's Pros

  1. You can "start over" financially. In many situations, you might be discharged (meaning forgiven) from most or all of your unsecured debts. Exceptions to this include child and spousal support, recent student loans, and court fines or penalties.
  2. Debt collection stops immediately. As soon as you file, an automatic stay prevents creditors from taking any collection action. This includes those harassing phone calls from aggressive collection agents.
  3. Some assets remain yours. Even though you could lose some assets in filing for bankruptcy, national and provincial law exempt certain key assets. For instance, many BC bankruptcy filers can keep their homes and cars depending on the equity available in those assets. Clothes, tools of the trade, and even some life insurance policies are protected under BC law.

Bankruptcy's Cons

  1. Your credit report will reflect your bankruptcy. This can make getting a car, home, or insurance more difficult for the six years after your discharge from bankruptcy, which is how long your bankruptcy filing will remain on your credit report. However, keep in mind that if you have already defaulted on any repayments or loans, your credit rating is likely already negatively affected, so what you are after now is a fresh start, not protecting an already damaged credit rating.
  2. Credit cards will be harder to qualify for. Filing for bankruptcy can make being approved for credit cards difficult. Even if you are able to secure a credit card, your rate might be much higher. There is some good news: a recent Purdue University study concluded that one third of consumers who filed for bankruptcy had secured a line of credit within three years, and one half had secured a line of credit within five years.
  3. Your co-signer is responsible for your debt. If your spouse, relative, or friend has guaranteed or co-signed for your debt, your filing for bankruptcy will not protect them from credit action.

Make an Informed Decision Whether or not bankruptcy is the right option for you depends on your unique financial situation. Feel free to contact Abakhan & Associates Inc. for a free initial consultation to discuss your individual circumstances and available options. Be informed.

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