Why File for Bankruptcy Protection?

Bankruptcy is a legal status that a debtor can obtain from a bankruptcy court to essentially reorganize his financial life and manage an overwhelming debt load. Bankruptcy protection does have negative consequences, such as more difficulty in getting credit and a black mark on your credit report that lasts seven years. There are also certain types of debt that can not be removed such as student loan debt or unpaid taxes. With the importance of credit in society and restrictions on the types of debt that can be included, one may wonder why bankruptcy protection is useful.

Why Bankruptcy Protection Is a Good Thing

People file for bankruptcy for different reasons. Some people file because they are about to have their home foreclosed upon. A bankruptcy puts an automatic stay on legal proceedings such as foreclosures and proceedings associated with them such as foreclosure sales.

Another reason some people for bankruptcy is medical debt from an illness such as cancer. All collection efforts on any debt entered into bankruptcy must cease immediately after filing. This means that someone who is sick will not have to endure stressful and harassing collection attempts from creditors that may aggravate one's health problems.

A third common reason to file for bankruptcy is too much debt and not enough money to pay it. If you have a lot of credit card debt, for instance, it may be a good idea to file for bankruptcy as a means to get it under control without losing your home, car or other property in collection efforts from unsecured creditors who would not get high priority in a bankruptcy payment schedule.

When to File for Bankruptcy

The decision to file for bankruptcy is not one to take lightly. You should speak to someone with knowledge in this area, ideally an attorney, who will be objective and can help you look at the situation objectively. You should also consider all alternatives such as negotiating a new payment arrangement with your creditors, going to credit counseling, or other less extreme methods than filing for bankruptcy.

However, if you have recently lost income due to a layoff, death or other circumstance, and truly have no other options to repay mounting debt, it is best to file for bankruptcy.

Getting Legal Help

This area of law is complicated and continues to change. You should retain an experienced bankruptcy attorney in your area.