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Pro and Cons of Filing for Bankruptcy

What Happens When You Enter Bankruptcy? – The Automatic Stay

According to United States bankruptcy law, an automatic stay is defined as an automatic injunction, the purpose of which halts the actions of creditors to collect debts from a debtor who has filed for bankruptcy relief. Provisions for automatic stay fall under section 362 of the U.S. Bankruptcy Code, which suggests that the stay begins automatically when the debtor files a petition with the bankruptcy court. Although a stay is automatic, secured creditors may file a petition with the bankruptcy court for relief against the automatic stay if they can show cause.

The automatic stay protects the debtor against certain actions of the creditor which may include judicial proceedings, actions to obtain the debtor’s property, actions to enforce a lien against the debtor’s property, and set-off indebtedness. A court may give the creditor relief from the automatic stay if the creditor can present evidence demonstrating that the automatic stay will jeopardize the creditor’s interest in the property. Relief, in this sense, may be in the form of periodic cash payments or a replacement lien on the property.

Pro and Cons of Filing for Bankruptcy

Declaring bankruptcy is a difficult decision. A bankruptcy affects your credit, relationships, and your personal emotional health. It can also improve your quality of life on a short-term basis. Bankruptcy may help to keep you from losing your home, car, and other assets.

Although true, there are still pros and cons to filing for bankruptcy. On the con side, you will lose your credit cards. In addition, a recent bankruptcy may affect your ability to get a new mortgage. Bankruptcies stay on your credit report for 10 years. The presence of a bankruptcy will make it difficult for you to purchase a home, buy a car, obtain life insurance, and possibly get a job. It is important to note that not all debts are discharged through bankruptcy. Such debts include student loans and back taxes. If you declare bankruptcy, you can expect your name to be in the court records and possibly appear in your local newspaper. Lastly, a bankruptcy affects your psychological health, because it is, in essence, an admission of defeat.

On the pro side, if you file for bankruptcy, then all actions by collection agencies and creditors will stop, which is considered an automatic stay. See the appropriate section for more information. Collection actions include foreclosures, repossessions, and garnishments. Most states allow you to exempt your home, car and other essentials, so you will not wind up homeless and unable to get around” (, “The Pros and Cons of Bankruptcy,” 8/16/2013). Declaring bankruptcy can actually help you on the road to rebuilding credit. Bankruptcy will prevent lenders from taking aggressive action. Lastly, bankruptcy, in essence, will help you develop a plan for working through your debt repayment plan and moving forward with sound financial goals.

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