If you’re thinking about filing for Chapter 7 Bankruptcy, or Chapter 13 Bankruptcy, then you might be wondering about the pros and cons of filing for bankruptcy.
Here’s our guide.
Pros of filing for bankruptcy
1. You get out of debt right away
Normally once you decide to file for bankruptcy in Minnesota, you stop paying your creditors that you are eliminating.
Of course, you will probably keep paying on your home loans and car loans if you are keeping your car and home.
There are also debts that bankruptcy doesn’t work on like student loans, child support and some, but not all, taxes.
2. You stop creditors trying to collect from you
Bankruptcies start with a court order that forbids any collection activities. That means:
- Creditors can’t sue you, and if they have already sued, they have to stop in their tracks
- They can’t garnish your wages, and if they already have, they have to stop. Often we can even get garnished wages back for you
- They can’t make nasty phone calls or send mean letters to you
- Bankruptcy can usually stop a repossession or a garnishment. It can also stop a utility shutoff
3. You usually keep all your possessions
There is a long list of things you get to keep when you file bankruptcy, and it usually includes everything you own.
The Minnesota Bankruptcy Exemptions List includes things like your home, car or truck, retirement plans like 401K’s or IRA’s, your clothes and furniture, etc. This is called your exempt property.
4. You keep your salary
After you file bankruptcy, you get to keep your wages, and creditors can’t garnish them.
5. Filing bankruptcy can help you rebuild your credit rating
Because you are out of debt, creditors are more willing to lend you money again.
The creditors associations run a public relations campaign called “The 10 Year Mistake” campaign that tries to convince you that your credit will be ruined for 7 or 10 years if you file bankruptcy.
This is simply not true.
Everybody who files bankruptcy in Minnesota is getting at least 6 offers to buy cars on credit between the time they file their case and when they go to court a month later. So much for the 10 years.
6. You will be able to get a mortgage
If you want to buy a home, most of the government lenders such as FHA and Fannie Mae will allow you to get a mortgage 2 years after your bankruptcy.
7. You don’t need to worry what people will thing of you
The judge and trustees will have heard hundreds of cases similar and worse than yours.
There is far less stigma attached to bankruptcy than there once was.
Cons of filing for bankruptcy
1. You will have a hard time getting a mortgage for 2 years
Of course, if you already have a mortgage, you can keep it and your home.
It is possible that you will be closer to getting a mortgage if you file bankruptcy. The bills you owe may prevent your from getting a mortgage.
2. You can’t file another Chapter 7 Bankruptcy for 8 years
You won’t be able to file for Chapter 7 Bankruptcy for 8 years, but you might be able to file for Chapter 13 bankruptcy after 4 years if you need to.
3. You will lose your credit cards
Your credit card companies usually cancel your credit cards. This does have the advantage you won’t get in trouble with them again. In the meantime you can get and use a debit card.
We have heard from many clients that they are offered and accepted for credit cards before their Chapter 7 Bankruptcy case has been finalized.
4. Bankruptcy doesn’t work on some debts
It doesn’t eliminate child support, alimony, student loans and some taxes. It does work on many types of taxes, however.
Conclusion
Most people find these cons are small inconveniences and well worth putting up with in order to get out of debt.
If you have questions about Chapter 7 or Chapter 13 bankruptcy, please feel free to Contact Us at 612.824.4357. We are happy to talk with you for free.
