Pros and Cons of Filing Bankruptcy

Bankruptcy represents a longstanding commitment in this country to helping people get a fresh start. This principle has never been giving only certain people a fresh start. - Tim Johnson

The state of bankruptcy, is an inability on part of a business or individual to pay back creditors. It is a severe cash crunch situation, in which an individual or a business organization is unable to pay its bills or cover up the cost of running their operation. Filing for bankruptcy is legally declaring in court, your inability to pay back your creditors.

Bankruptcy filing is a legal provision, designed to help individuals and businesses from sinking in financial catastrophes. In case, a company or an individual finds himself in a state of insolvency and liquidity crunch, he has an option of filing for bankruptcy and saving his career or business. However, like every decision in life, there are both positive and negative consequences of bankruptcy. The consequences of bankruptcy filing should be considered before you make up your mind. Applying for bankruptcy is a provision for emergency and is a path that one must take, in case of a failure of all other means to bail out a business. After bankruptcy declaration procedure, things change drastically for the business or the individual.

Bankruptcy filing is a tool of insolvency legislation aimed at achieving the rehabilitation of a business through organizational or financial restructuring. It is a legal tool to help businesses which have good potential, but have fallen in a financial quagmire, to rise again and find their feet.

Filing for bankruptcy falls under federal jurisdiction. The laws governing bankruptcy may vary from state to state in USA. There is a separate bankruptcy court in USA where an individual or a business organization can file bankruptcy, in order to get a relief from his debt. The pros and cons of filing bankruptcy differ according to the chapter of bankruptcy code under which it is filed, the situation of the business and the scale of insolvency.

There are many different chapters in bankruptcy code, in order to deal with different situations of insolvency. As they say, all happy families are similar, but every unhappy family is unhappy for a different reason. Similarly, every business may have different reasons that have led to its bankruptcy. Businesses filing bankruptcy differ in the scale of debts that they have, as well as reasons that brought them to it. So there are different chapters in the bankruptcy law to deal with different cases.

Advantages & Disadvantages of Declaring Bankruptcy

Pros and cons are discussed with a generic view, not considering specific cases according to chapters.

Pros:

• Debt Free Status: Once you have paid a certain number of prearranged monthly payments, set by the court, you are completely debt free, according to Chapter 13 bankruptcy rules!
• Avoid Foreclosure: If you regularly make the requisite repayments set for you by the court, you can prevent foreclosure.
• No Further Legal Action: As long as you fulfill your obligations after declaring bankruptcy, your debtors cannot take any more legal action against you.
• Non-Exempt Assets: Under Chapter 13 bankruptcy rules, you get a provision to protect your non-exempt assets.

Cons:

• Bad Credit Record: Bankruptcy remains as a blot on your credit history record.
• Future Credit Access Hampered: With a history of bankruptcy, you will find it difficult, if not impossible, to get any loans.
• The 6 Year Rule: Once you have filed for bankruptcy under a chapter, you cannot file again under the same, for 6 years. However, you could file bankruptcy once again under a different Chapter in 6 years.
• Taxes, Alimony and Child Support: Although a person opting for a bankruptcy declaration has exemptions from paying certain amount of credit, he must pay for child support, alimony or any other legal obligations that he has.

One should look for bankruptcy alternatives, before going for this drastic decision. Other ways can be worked out sometimes. Nobody wants to make this bankruptcy decision, but circumstances and bad business decisions force one to make it. This provision of bankruptcy declaration has been provided as an aid and not as an escape route. One should seek bankruptcy advice from specialist lawyers before filing it. Use the bankruptcy filing option wisely and only under extreme case of emergency, as it has repercussions on everything that you do in the future!