Many Californians are struggling with unaffordable levels of debt. While many people qualify to file for bankruptcy, some never do. For some people, filing for bankruptcy is the best solution to managing their debts. Deciding if you should file for bankruptcy will depend on your financial circumstances and the potential ramifications. An experienced bankruptcy attorney at The Shulman Law Office can help you to determine whether bankruptcy is the right choice for your situation. Knowing the upsides and downsides of filing for bankruptcy can help you to decide if and when you should file a bankruptcy petition.

What are the upsides to filing for bankruptcy?

Filing for bankruptcy offers multiple benefits for people who are unable to afford their payments. Some of these advantages provide good reasons for people to consider filing for bankruptcy.

Issuance of an automatic stay

When you file a bankruptcy petition, the bankruptcy court will issue an automatic stay. This is an injunction that prohibits your creditors from engaging in any further collection activities. The stay does not eliminate your debt, but any debt collection activities will be suspended until the stay is lifted or your bankruptcy case is over. The automatic stay will end letters and calls from debt collectors, wage garnishments, foreclosure proceedings, creditor lawsuits, and repossessions.

If one of your creditors continues to engage in debt collection activities after the automatic stay has been issued, your bankruptcy attorney can file a motion with the bankruptcy court to hold the creditor in contempt of court. The court can then force them to stop trying to collect on the debt and order them to pay a fine and possibly pay damages to you.

An automatic stay in a bankruptcy case will not stop tax audits, criminal proceedings, child support, alimony, or efforts to collect the debt from cosigners. If you previously filed for bankruptcy during the last year, you can ask the court to extend the initial automatic stay. However, if you have filed for bankruptcy several times during the past year, the automatic stay will have to be ordered by the court.

Ability to discharge debts

While some types of debts are non-dischargeable in bankruptcy, others can be discharged. When a debt is discharged, it ends your obligation to repay it. When your bankruptcy case is over, the creditor for a discharged debt may not resume collection activities. Dischargeable debts include many types of unsecured debts, including medical bills, credit card debt, and personal loans. Secured debts will not be discharged, however. There are also certain types of debts that cannot be discharged in bankruptcy, including back child support and alimony, student loans, certain types of taxes, criminal restitution, and others.

Bankruptcy exemptions

California has two bankruptcy exemption systems that you can choose from. Exempt property is not included in your bankruptcy estate and cannot be sold by the trustee to repay your creditors. The exemptions let you keep the exempted property after you file for bankruptcy. Some exemptions apply to specific types of assets while others apply to property worth up to a specific dollar amount. Other exemptions can be applied to anything that you own. Bankruptcy exemptions help you to save some of your property during and after your bankruptcy case.

Surprising improvements of credit scores

When you file for bankruptcy, it will make your credit score fall and will remain on your credit history for seven to 10 years. However, many people who file for bankruptcy see score improvements once their debts are discharged. They can then begin to rebuild their credit and enjoy a fresh start. However, even if bankruptcy is the right option for you, understanding the consequences is also important before you file.

What are the downsides of filing for bankruptcy?

While filing for bankruptcy offers some benefits, there are also some disadvantages that you should consider. Knowing the downsides of filing for bankruptcy can help you to know what to expect.

Immediate drop of your credit score

When you file for bankruptcy, your credit will be immediately impacted. The bankruptcy will stay on your credit record for seven years if you file for Chapter 13 bankruptcy or 10 years if you file for Chapter 7 bankruptcy. Having a bankruptcy on your credit record can make it more difficult to get a mortgage or other loan for several years.

Losing your credit cards

When you file for bankruptcy, your credit card companies will likely cancel your cards. After your debts are discharged, you may receive credit card offers. While these can help you to rebuild your credit after bankruptcy, they will likely carry high rates of interest and annual fees.

Losing some types of property

While California has exemptions available for some types of property, not all property can be exempted. If you have high-value property or non-exempt assets, the bankruptcy trustee might seize them to sell and repay your creditors.

Some debts can’t be discharged

Some types of debts cannot be discharged in bankruptcy. These include most student loans, certain tax debts, alimony, child support, and criminal restitution. Your obligation to repay these debts will continue after you receive a discharge of your dischargeable debts.

Cosigner liability

If you had a cosigner for a personal loan and file for bankruptcy, the creditor can still pursue your cosigner for payment. His or her liability to repay the debt will not be erased because of your bankruptcy. You should tell a cosigner that you intend to file for bankruptcy before you do. He or she will also be notified by the bankruptcy court after you file.

Stigma

Some landlords and prospective employers ask about bankruptcy cases. If you apply for a job or an apartment after you file for bankruptcy, it can hurt your chances.

Talk to an experienced bankruptcy lawyer today

The decision to file for bankruptcy is complex. Understanding the upsides and downsides of bankruptcy is important so that you can make a more informed choice. If and when you should file for bankruptcy will depend on your financial circumstances. To learn more about whether it is the right decision for you, contact the Shulman Law Office in San Jose today by calling us at 408-297-3333.