consumer

Advantages and Disadvantages of Filing a Consumer Bankruptcy

Many people in the United States who file for consumer bankruptcy never avail themselves of its potential benefits. Filing for bankruptcy can indeed affect a person’s finances for years to come, but filing a consumer bankruptcy is the best option for many people. 

This article will discuss the advantages and disadvantages of filing a consumer bankruptcy to give you a clear idea as tooft to expect when filing for bankruptcy.

Advantages of filing for bankruptcy includes

Stay against creditors

Once you file the bankruptcy, the court issues an automatic stay against creditors and any debt collection activity. It suspends the debt collection activity for the time being until your bankruptcy case is complete or the stay is lifted. The stay does not cancel the debt. It simply means:

  • No more calls or letters from debt collectors
  • Wage garnishments
  • Property repossession, etc.
  • Dischargeable debts

A dischargeable debt can get eliminated by bankruptcy. You may be able to cancel or discharge your responsibility to repay these debts. For example, medical and utility bills, credit card debts, and personal loans come under dischargeable debts.

A clean slate to improve credit score

A consumer bankruptcy filing remains on your record for 7-10 years, and the worries about a tanked credit score are the main reasons people do not or delay filing bankruptcy. After filing for bankruptcy, many debtors start improving their credit score as filing bankruptcy allows the debtor to move forward with a clean slate and begin rebuilding their credit.

Disadvantages of filing for bankruptcy includes

Loss of credit cards

Credit card companies will automatically cancel any credit card you hold after you file for bankruptcy. You can apply for unsecured credit cards, but the annual fees and interest rates are much higher for such credit cards.

Tanks your credit score

Chapter 7 bankruptcy stays for ten years, and Chapter 14 remains for seven years on a person’s credit record. Click here for more information on chapters 7 and 14 of the bankruptcy code and consumer credit definition.

Denial of tax refunds

Federal, state, and local tax refunds get, As a result, you denied after filing consumer bankruptcy.

Job and Housing stigma

Some employers and landlords tend to ask if you have filed any bankruptcy recently. The bankruptcy filing can impact the decision of employers and landlords.

It makes it difficult to get a mortgage or a loan.

A bankruptcy filing can make it difficult for you to get another loan or mortgage many years after the bankruptcy is filed.

Definition and Types of Consumer Credit

In the most straightforward language, consumer credit means that individuals take debt to purchase goods and services. The most common example of Consumer Credit is an individual using a credit card. The person uses the credit card to buy goods and services and pays the credit card company later.

There are three types of Consumer Credit.

  • Installment Closed-End Credit

Such consumer credit allows the customer to receive a particular amount of praise from purchasing one item or few goods. One type of installment closed-end credit is a car loan. The car company offers the customer the consumer credit to buy the card. The distinction, in this case, does not extend beyond the market price of the car. The person pays the credit in installments instead of paying it back in a lump sum amount.

  • Non-Installment Credit

This type of credit is opposite to the Instalment closed-end credit. Here, the person does not pay in monthly installments but pays, i.e., the total—the amount owed in a lump sum. Non-Installment credits can either be secured or unsecured depending on the company offering the credit. The said credit becomes due in a short period, such as in a month or two.

  • Revolving Open-End Credit

Revolving open-end credit is typically the facility given by credit card companies to their customers. Consumers have a particular amount of credit that they can or cannot use according to their leisure. If the consumer uses the credit card, the credit amount should be repaid at the end of a period, usually a month.

To conclude –

Filing for consumer bankruptcy is a complex process. There are actual mathematical calculations involved and legal formalities to meet. However, an expert attorney can help you tackle all complexities relating to defaults in your difficult times.

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