Most people are declared bankrupt when they are unable to pay their creditors and pay bills. It is either initiated by court order or by debtors. Any entity or individuals that want to be declared bankrupt is expected to prove eligibility for following. Those who have submitted evidence are given protection by the court the insolvency proceedings. Many people have been using it a resort for getting out of financial downfall and debts. This write-up is going to share the advantages and disadvantages associated with bankruptcy.
Advantages
Paying Off Unsecured Debts
There are several types of bankruptcy that you and file depending on your case. Some types of bankruptcy give creditors the process of selling some properties to pay one’s debtors. However, some properties are not sold by debtors including clothes, furniture pieces. Any debt that is not protected by collateral is automatically wiped out.
Improving One’s Credit Score
The process for filling bankruptcy records can take about seven years. A debtor can advantage of this time to improve his/her credit score. It is therefore important to have a copy of your credit history and follow the necessary steps. First, you should make sure that your loans are paid as scheduled. Secondly, you should make an effort if saving about ten percent of your monthly income. Debtors are sued to open secure credit card account bankruptcy is released. Adopting these steps can help you in rebuilding your credit score after some time.
Disadvantages
Loss of Property
Even if you might be allowed to keep some of your properties, the debtors might be given the right to seize some properties and sell them as part of paying off their debts. Seizing and selling of properties is something that can affect the businesses or individuals affected, especially when the properties sold have a high market value. The property sold could be a major setback to the debtor’s family.
Credit Card Score
The credit score is affected once a bankruptcy is declared. This can also lead to cancellation of a mortgage or other loan that you might be applying. Remember most lenders rely on credit cards and credit score when lending it money. A poor credit score is a major blow to anyone who is planning to apply for a car loan or mortgage.
Tax Refund Denial
Debtors who have been declared bankrupt might not get tax refunds from federal governments or state government. Additionally, filing for bankruptcy can also backfire if your tax refunds are not approved.