The following are the main advantages to filing a Bankruptcy:
1. Discharge of Debts. No matter what chapter of the Bankruptcy Code a debtor may file under, the goal would be to obtain a discharge. A discharge makes some of the debtors debts unenforceable against the debtor. The most common type of debts for an individual that are discharged include medical bills, credit cards, some judgments, lease agreements and a second mortgage. A corporation cannot receive a discharge under Chapter 7, but they can receive one under Chapter 11.
A discharge does not get rid of liens, so if, for example, there is a car loan that loan would survive. In order to keep the car, the Debtor would have to pay the loan. On the other hand, if the Debtor does not wish to keep the car, then the Debtor would have no more liability other than turning in the car. There could not be a deficiency judgment.
You should consult a bankruptcy attorney to determine whether your debts are likely to be discharged.
2. The filing of a bankruptcy triggers an automatic stay against most creditor actions. For example, a creditor trying to do a judgment debtor examination would be prevented from doing so by the automatic stay. Trials are generally stopped in a State Court proceeding unless the Bankruptcy Court specifically grants permission to continue. A wage garnishment, foreclosure or similar proceeding are also stopped at least temporarily while the bankruptcy is pending.
3. Certain transfers may be set aside to bring assets back into the estate. Thus, if a creditor lien is recorded within 90 days prior to the filing, that lien can be set aside and void. Also, if payments to creditors were made within 90 days of the filing, they may be requested back from the creditor as a preference.
4. Under a Chapter 11 or Chapter 13, a debtor may restructure debts and reorganize their business. This would give a debtor breathing room to hopefully solve the financial problems.
5. A lien may be striped if it is valued as more than the value of the collateral. This is allowed in a Chapter 11 or Chapter 13 proceeding and there are certain other requirements. But in some cases an entire second mortgage can be striped.
6. Taxes may be paid overtime.
7. Mortgage arrearages may be cured so that the property can be retained.