Despite the prevailing stigma surrounding bankruptcy, hundreds of thousands of people in the U.S. file for bankruptcy protection every year. For many, debt relief under court protection can be the tool they need to get their financial lives back on track. Here are the four main benefits of bankruptcy, and other resources you can explore if you’re considering this option to get out of debt.
1. You’re legally protected.
One of bankruptcy’s main benefits is the legal protection it provides for people with debt. This protection eliminates judgments, liens and wage garnishments, and stops all collections – even a foreclosure. If collectors tell you you’re in a “pre-legal” phase or if you’ve received notice that a suit has been filed, then you may need to quickly determine how best to respond and bankruptcy may be a good option.
2. There’s no impact on your taxes.
Unlike debt settlement, where the forgiven debt is treated as taxable income and is thus subject to taxes, the debt discharged in a bankruptcy proceeding is not taxable, though a creditor might send you a 1099 form. If that happens, a tax professional can file Form 982 (Reduction of Tax Attributes Due to Discharge of Indebtedness) on your behalf.
3. It’s a lower cost option than other forms of debt relief.
Another one of the main benefits of bankruptcy is the price. The total cost of bankruptcy depends on the type you file. For a Chapter 7 bankruptcy, there are two types of fees: filing fees and attorney fees. Fees include the administrative cost ($335) and the cost of a mandatory credit counseling course (around $25). Attorney fees vary, but the average is about $1,500. While Chapter 13 costs vary, you can expect to pay at least $3,000. All told, this is likely a much less expensive way of dealing with debt than other forms of debt relief such as debt settlement or debt management.
It’s a fast way out of debt.
Relief from your debts under Chapter 7 is fast. It’s usually completed within 90 days of filing for bankruptcy protection. Once your case is discharged, you can often apply for new credit cards within just a few months, and you’ll likely qualify for a home loan in two to three years, and federal student loans after three years.
How Resolve can help
We can assess your situation and show you your options for paying off your debt, including filing bankruptcy, if appropriate. We can connect you with licensed professionals in your state that offer a no-cost initial consult and can help you understand what bankruptcy would mean for you given your financial circumstances.