Many people tend to think of bankruptcy as a last-gasp measure when they are overwhelmed by massive debt with little hope of meeting those obligations. However, it’s important to know that filing Chapter 7 or Chapter 13 isn’t the end of the world, and in many cases, it can be the best move.
Immense medical debt is, by far, the most common reason people fall deeply into debt. That is especially true during the current pandemic as millions of Americans have lost their jobs through no fault of their own. Mounting bills and lost wages can be a devastating combination.
The myth of damaged credit
Creditors and other financial experts often say filing for bankruptcy is the worst thing you can do to your credit score. However, while filing does impact your score, it likely won’t affect your rating as quickly or for as long as missing payments, foreclosures, repossessions or being targeted by debt collectors.
People who struggle with debt for a long time usually already suffer from damaged credit. Those scores typically rise after seeking bankruptcy protection and can rebound even more rapidly when much of their debt is erased or discharged.
Other protections of bankruptcy
Bankruptcy can be complicated, so talking to an experienced attorney can be the best protection for restoring your financial future. Filing also offers these benefits:
- Freedom from debts: Chapter 7 can erase certain types of debts, such as medical bills, personal loans, credit card debt, past-due rent and utility bills and some older tax debts.
- Ending collections: Debt collectors are notoriously aggressive and persistent. Once you file, an automatic stay is issued, meaning these individuals can no longer contact you.
- Accessing new credit: While access to credit can be challenging right after filing, studies show people who complete the process are usually granted new credit within 18 months. Expect lower limits at first.
Getting a fresh start
While most of us feel an obligation to pay our own way and meet our financial commitments, many times, it’s not our fault when confronted with overwhelming debt. If you are able to pay your bills, that’s the best option. However, if you are drowning under a tidal wave of debt, it can be in your best interest to consider bankruptcy sooner rather than later.