By Hannah Rice Myers
Overview
Many who are overloaded with debt turn to bankruptcy as a way of starting over. When buried in bills they can no longer pay, bankruptcy seems like the only way out. It is the light at the end of the tunnel. At first glance, it can appear to have more pros than cons. However, in the long run, the opposite might just be true.
History
The practice of bankruptcy dates back as far as the Roman Empire, although modern day bankruptcy as we know it wasn't conceived until the sixteenth century by the British. The initial idea of bankruptcy was not to assist the debtor though; it was in fact used as a means of punishment, as the debtor was imprisoned for their inability to repay their creditors. Some modifications of this method were made during the pre-revolutionary war period with the thirteen colonies. Although the laws varied throughout the colonies, the overall modifications were in favor of the debtor, allowing them to retain some of their assets while avoiding imprisonment.
Function
Bankruptcy can be filed by anyone, individual or business, who feels they no longer have the ability to repay their debts. It is generally viewed as a benefit for the debtor, although the most recent modification made to the bankruptcy law in 2005 significantly changes this. The law now requires that those filing for Chapter 7 must fall within lower income guidelines to be completely admonished of their debts, which forces many to file instead for Chapter 13. This requires debtors to repay creditors over a period of time, which is determined by the court.
Benefits
There are many benefits for those who file bankruptcy. Once the process has begun, the collection process will end, as will the harassing phone calls. It may prevent repossession of valuable property or assets, depending of the type of bankruptcy that has been filed. If you have successfully filed for Chapter 7, any wage garnishments will end. It will prevent the utility companies from disconnecting your services and will force them to turn them on again. It may also discharge all of your debts, depending upon the type of bankruptcy you were allowed to file for.
Negative Effects
For every positive there is a negative. On the flip side of bankruptcy, you may lose any assets you have, including your business if you are a business owner who is filing. If you are forced to file for Chapter 13, the payments you are required to make may be garnished from your check. You will also be viewed as a high credit risk by potential lenders in the future, which means you will either be denied credit, or pay high interest rates and down payments if you are approved. In addition, the bankruptcy will remain on your credit report for seven years if you have filed a Chapter 13, and for ten years if you have filed a Chapter 7.
Considerations
Before viewing bankruptcy as your only option, you may want to consider the many alternatives available to those in debt. You also need to know that there are some debts which cannot be listed on a bankruptcy form, such as child support, taxes, criminal fines, and student loans. Finally, bankruptcy does not only affect the debtor, it may also affect their co-signer(s) as well. If a debtor files for Chapter 7, their co-signer(s) will still be held accountable for the delinquent payment. If a person has filed for Chapter 13 however, their co-signer(s) is relieved of their responsibility.
Effects of Filing Bankruptcy by pinstripefinance.com