Bankruptcy: Understanding The Pros And Cons
Mention bankruptcy to an individual and for sure these mental images will instantly
pop up in his head: closing down of companies, losing a great deal of money, repossession of assets, stringent legal procedures and even cutting off of utilities and basic services. But are these only things associated with bankruptcy? Let us find out.
What is Bankruptcy?
Bankruptcy is a legal process that provides people and even businesses a fresh start from all their debts. In the world of finance, filing for bankruptcy means that a person or a business owner is in dire financial difficulty that prevents him from settling his outstanding obligations with all his creditors.
In this credit-busting option, the consumer can eliminate some or all of his existing credit accounts. If this is not possible, then the consumer will be given more flexible payments terms, under the supervision of the bankruptcy court.
Creditors can also benefit from a bankruptcy. Through this credit option, lenders that provide unsecured credit accounts can equally share in whatever payments a borrower can afford to make. This way, they can also regain substantial portions of the funds that they have extended for credit.
Now, what are the good and bad sides of having a bad credit report? So how will bankruptcy affect the reports you have with the three credit reporting bureaus? Allow us to discuss the answers to these two queries.
The Good Side of Bankruptcy
Many consumers believe that bankruptcy gives them protection. This is because upon filing for bankruptcy all debt collection activities generally stop. How come? Well bankruptcy removes your legal obligation to repay most, if not all of your outstanding debts. So, collection agencies as well as your creditors can no longer ask you to settle your unpaid credit charges once you have applied for bankruptcy. Not only that. Bankruptcy can also give you protection from losing valuable utilities services like electricity, water services and others.
You can also avoid further wage garnishment through the help of bankruptcy. So as long as you pass the Means Test employed by the bankruptcy courts, you can expect to receive your complete income every month.
Bankruptcy also provides you a chance to start anew. Without worrying about your outstanding financial obligations, you can easily focus your attention in managing your finances responsibly. This way, you can avoid falling into new debt traps and prevent yourself from experiencing financial difficulties.
The Bad Side of Bankruptcy
Bankruptcy also has its own set of drawbacks. Keep in mind that a bankruptcy record stays on a credit file for about seven to ten years. This can cause you to have a bad credit report, which will in turn cause you to have a difficult time in applying and getting approved for credit accounts that carry affordable rates and flexible payment terms.
Not only that. Bankruptcy also pulls your credit score down. You can lose as much as 100 points from your current credit rating once you have applied for this credit option. And it may take you some time to cause a great improvement on your credit profile that is being managed by the three credit reporting agencies.
Still, if you are diligent and determined enough, you can gradually recover your financial health after your bankruptcy mark has been dropped from your credit records. By then, you can receive better credit scores from the three credit reporting agencies and you can soon be granted the credit programs you need.
We hope that this short overview helped you see the other things that can be associated with the credit option known as bankruptcy.
Copyright (c) 2010 Suzy Vanstrusen
by: Suzy Vanstrusen
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