Asset Protection

Bankruptcy

Learn here about the pros and cons of using bankruptcy as a form of asset protection.

Bankruptcy is a means of asset protection that is a last resort technique. Many people find themselves suddenly too far in debt to be able to pay all creditors. Sometimes this is due to an injury or illness that prevents work, it can be due to simply “getting in over your head” in credit card debt, etc, or it could be a result of a lack of asset protection (such as starting a business as a sole-proprietorship—if the business fails the owner could be held personally responsible for debts he can not pay). If you are considering filing bankruptcy as asset protection, you need to consider the following pros and cons before making a decision:

Benefits of Filing Bankruptcy

• You will avoid losing some assets—while bankruptcy doesn’t help you avoid all debts, it can prevent foreclosure on your home, repossession of your vehicle, and it can help you keep other essential assets

• You can be shielded from creditors—if you hire a bankruptcy attorney to handle your bankruptcy, all your creditors will have to contact them from that point on.

• Prevents lawsuits—once you have filed bankruptcy, your creditors will not be able to sue you for bad debt.

• You can begin to rebuild your credit and your life—if bankruptcy seems to be your only option, filing can help you begin the long process of rebuilding credit.

Disadvantages of Filing Bankruptcy

• You will lose all credit cards—unless you managed to pay off your credit card before you file bankruptcy, you will no longer be able to have access to any credit cards.

• You have to rebuild your credit—it takes years to rebuild credit after filing bankruptcy, which is why it should be a last resort. This means that it will be a long time before you will be able to get a mortgage, another credit card, a new vehicle, etc. A bankruptcy will remain on your credit report for ten years, and it often takes people at least half that time to start rebuilding their credit.

• Bankruptcy will not allow you to avoid all debts—there are some debts that cannot be avoided, such as student loans and back taxes. While bankruptcy will help prevent you from being sued for these debts, you will not be completely relieved of them.

• It is an admission of failure for many people—while you may be having a hard time paying off credit cards or loans, as well as other bills, if you file bankruptcy, you may still feel as though you failed by avoiding the problem.

If, after considering the above information, you feel that you may need to file bankruptcy, you should consult with an attorney to personally discuss your situation. Doing so will help you determine the best move to make for you and your family.