What Are the Advantages of Filing for Bankruptcy?

There are several advantages to filing for bankruptcy.

By far the most important advantage is that debtors may obtain a fresh financial start. As we shall see below, consumers who file for Chapter 7 may be forgiven (discharged from) most unsecured debts. A secured debt is one which the creditor is entitled to collect by seizing and selling certain assets of the debtor if payments are missed, such as a home mortgage or car loan. With those two major exceptions, most consumer debts are unsecured.

You may be able to keep (that is, exempt) many of your assets, although state laws vary widely in defining which assets you may keep.

Collection efforts must stop. As soon as your petition is filed, there is by law an automatic stay, which prohibits most collection activity. If a creditor continues to try to collect the debt, the creditor may be cited for contempt of court or ordered to pay damages. The stay applies even to the loan that you may have obtained to buy your car. If you continue to make payments, it is unlikely that your creditor will do anything. However, if you miss payments your creditor will probably petition to have the stay lifted in order either to repossess the car or to renegotiate the loan.

You cannot be fired from your job solely because you filed for bankruptcy.

Family Legal Guide Copyright © 2000, 2002 American Bar Association