The choice to file for bankruptcy is a difficult one for most people. People do not want to default on their debts or have a major blemish on their credit records. However, bankruptcy protections exist for a reason. Specifically, they help people overcome temporary financial hardship.
Those who file for bankruptcy can improve their circumstances during a difficult time and go on to regain their financial equilibrium. Many people who likely qualify for bankruptcy delay filing, possibly because they worry about the negative impact that bankruptcy could have on their lives.
That focus on the negative may prevent them from seeing the very real benefits that bankruptcy can offer someone during times of financial insolvency. For example, the following are the three most valuable benefits of a personal bankruptcy filing, but they are not the only ones!
The automatic stay
When someone files for bankruptcy, the collection activity they have faced should stop. The courts extend an automatic stay to anyone with a pending bankruptcy case. A bankruptcy can lead to the courts dismissing creditor lawsuits and a cessation of collection phone calls thanks to the automatic stay.
Leverage for negotiation
A Chapter 13 bankruptcy specifically involves a repayment plan where someone makes monthly payments to their creditors for between three and five years to reduce the balance owed. They must negotiate the terms of that plan with the court trustee and their creditors. Even debts that are not eligible for discharge in a Chapter 13 bankruptcy may be eligible for renegotiation as someone tries to rework their budget. Those filing for Chapter 7 bankruptcy may also be in an improved position to negotiate certain debt-related matters with their creditors.
A discharge of eligible debts
The circumstances that led to someone’s debt and the nature of their debt determine which debts are eligible for discharge. There are also financial limits on certain types of debt that might apply depending on which form of bankruptcy someone files. Those with significant medical debt or credit card debt in particular may find that the discharge is the most valuable benefit of bankruptcy, as it eliminates the need to repay those significant unsecured debts.
Learning about the benefits of personal bankruptcy could help people minimize their aversion to a process that could help them recover from a period of financial hardship.