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Advantages to Filing Personal Bankruptcy
Filing bankruptcy is a major life decision with lasting impact on the financial aspects of an individual’s life. Before filing bankruptcy, it is prudent to carefully consider the advantages and to seek financial and/or legal counsel.
There are several advantages to filing bankruptcy:
- Discharge from eligible debts
- Fresh-start breathing spell
- Automatic stay protection and cessation from creditor collections
- Retention of exempted property
Discharge from eligible debts
The main reason for filing bankruptcy is to receive the benefit of a discharge from eligible unsecured debts. The discharge is created under federal bankruptcy laws and lifts the burden and obligation of debt repayment from the shoulders of the debtor. After filing a filing a Chapter 7 bankruptcy, a debtor is released from the requirement to repay unpaid balances due after his or her assets have been sold and distributed through the liquidation process because those balances are deemed fulfilled. The purpose behind the discharge is to create a fresh start for the debtor and the opportunity to better manage future finances.
Fresh-start breathing spell
Bankruptcy laws afford a debtor with protections, the most significant of which is a fresh start and breathing spell from the harassment of collection efforts by creditors. Once a bankruptcy is filed, collection efforts by creditors stop by virtue of the automatic stay.
The purpose of this statutory reprieve is to afford the debtor with a discrete period of time to regroup financially and to develop a systematic approach to repayment of debts. The debtor can begin rebuilding credit and start over financially. Filing bankruptcy allows a debtor to get started with the task of rebuilding credit more readily and to undertake that process peacefully.
Automatic stay protection and cessation from creditor collections
Immediately upon filing for bankruptcy, a debtor receives the benefit of the statutorily created automatic stay. The purpose of the automatic stay is to put a stop during the pendency of bankruptcy to collection efforts of creditors and to allow the Bankruptcy Court to put into place a provision to prevent creditors from racing to the courthouse to claim a debtor’s assets. Instead, the Bankruptcy Code substitutes its own scheme for a hierarchy of creditors, debts, claims procedures and accompanying timelines.
Retention of exempted property
Several categories of property are exempt from creditors’ grasps once a debtor files bankruptcy. Usually, motor vehicles up to a certain value, some clothing, household furnishings, life insurance, family Bibles, pets, and portions of earned wages are included within the scope of exempted property.
State laws usually determine types of exempted property and respective dollar amounts for exemptions. In some instances, federal bankruptcy laws govern exemptions. Because the exemption process is governed differently by jurisdiction, it is prudent to consult counsel.