Filing bankruptcy is a legal process that individuals or businesses in debt with inability to pay use to establish a fresh financial start. This involves elimination of all or a portion of debts or stretching out monthly payments of debt under the supervision of a court. Declaration of bankruptcy is by filing a petition with the United States Bankruptcy Court, requesting that the court provide protection and relief under the Bankruptcy code. Filing bankruptcy has both advantages and disadvantages as follows.
The advantages of filing bankruptcy include the opportunity to establish a fresh financial start. This include discharge from most unsecured debts by individuals or businesses eligible for filing bankruptcy under Chapter 7. Another advantage of filing bankruptcy is that an individual or a business may be able to keep many of their assets, depending on state laws in their state of residence.in addition to this, collection of debt by the creditor ceases as soon as the individual or business files bankruptcy. In addition, there is protection from discrimination, for instance, an employer cannot fire an individual because they filed bankruptcy. This means that the individual’s job is secure.
The disadvantages of filing bankruptcy include the fact that it may affect the future finances of an individual or a business. This is because once they file bankruptcy, the bankruptcy filing remains in their credit record for up to ten years. It also affects the reputation and image of an individual or a business. Another disadvantage of filing bankruptcy is that the individual or business may lose property that is not exempt for sale by the bankruptcy trustee. In addition to these, the individual may lose their luxury possessions and credit cards, and may find it difficult getting a mortgage.
The available alternatives to filing bankruptcy include debt counselling done by agencies through the development of a debt management plan, debt settlement whereby the debtor may successfully negotiate with creditors to pay less than what they owe. Alternatively, an individual can liquidate their assets to pay off debt or get a debt consolidation loan that covers all their debts leaving them with debt that they owe a single creditor. In my opinion, it is not moral not to pay creditors, especially when debt is due to poor planning of finances. A decision to file bankruptcy is mostly unwise since it is a shortcut and may have awful consequences on both the personal and financial life of an individual and on the reputation of an organization.
American Bar Association. (n.d.). Retrieved from www.americanbar.org
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