Bankruptcy. For many people, that word carries a social stigma. But bankruptcy isn’t nearly as bad (or even uncommon) as you probably think. At least 800,000 people declared bankruptcy last year, and more than 1 in 10 were aged 65 or older. Here, we’ll explain some surprising bankruptcy benefits you probably never heard of before. And just imagine how great you’ll feel once you take action towards discharging all that debt!
Top 5 Bankruptcy Benefits
No matter which type of case you file, here are some bankruptcy benefits that you’ll likely enjoy:
1. You’ll have more cash on hand to cover emergency expenses going forward
Filing for bankruptcy instantly protects you from collection agencies and garnishments. For this reason, you’ll be able to keep more cash on hand for last-minute or urgent expenses. This includes costly car repairs or doctor’s bills, which are major contributors to bankruptcy filings across the U.S.
2. Filing for bankruptcy benefits you in some unexpected ways at tax time
The IRS website shows that you can deduct some bankruptcy-related costs from your income taxes. Here’s why that should excite you: When a creditor cancels or forgives debt, that amount usually counts as taxable income. But if you discharge that debt through bankruptcy instead, it doesn’t count as taxable income!
In addition, you can also deduct your administrative expenses and fees from your income taxes. Some examples might include: Accounting, attorney or filing fees you paid in court. But the bankruptcy benefits don’t end there: If you file for Chapter 7, the IRS gives you an automatic six-month tax-filing extension.
3. You’ll live longer and earn more money once court approves your Chapter 13 petition
Stress can negatively impact your health — and even kill you if you don’t find some way to manage it. In fact, worrying about money is the #1 stressor on most people’s lists. But luckily, an approved Chapter 13 bankruptcy petition can add 30% to your lifespan. This is just one of the bankruptcy benefits for Chapter 13 filers, according to the National Bureau of Economic Research. Their study also found Chapter 13 petitioners enjoyed 25.1% higher yearly incomes in the five years after getting court approval.
4. Repossession or foreclosure proceedings cannot move forward once you file
Of course, some states may have exceptions to this rule, depending on where you live. But in most cases, declaring bankruptcy protects your most important assets from repossession or foreclosure, such as:
- Your home (as long as you own, not rent)
- Work uniforms and other clothing
- Wedding rings and most other jewelry
- Household items, appliances and bedding
- Any items you specifically need in order to do your job, like tools, musical instruments, electronic equipment, etc.
- Mobility assistance and other necessary health or medical devices (i.e., wheelchair, cane, scooter/walker, glasses, hearing aids, etc.)
- One vehicle used for the household’s daily transportation needs
Protecting your car from repossession and stopping foreclosure proceedings are the two biggest bankruptcy benefits for most people. In fact, any creditors trying to take away your vehicle or house must stop those efforts the moment you file.
5. Those nagging calls from debt collectors and other creditors must stop immediately
I hate answering the phone when the number that’s calling isn’t in my contacts — and for good reason. Credit card companies (or worse, debt collectors) calling day and night would make anyone hate hearing the phone ring. It’s also one of the first bankruptcy benefits most people notice after filing their petition in court. Once the bankruptcy court discharges your debts, you can rest easy knowing you’ll never get another collection call. (If a debt collector does call and you have an attorney, federal law requires them to contact your lawyer instead.)
Laura Schaefer is the author of The Teashop Girls, The Secret Ingredient, and Littler Women: A Modern Retelling. She is also an active co-author or ghostwriter of several nonfiction books on personal and business development. Laura currently lives in Windermere, Florida with her husband and daughter and works with clients all over the world. Visit her online at lauraschaeferwriter.com and linkedin.com.