People often have negative attitudes toward bankruptcy, viewing it as a sign of failure instead of a valuable tool. People become so absorbed in the stigma of a bankruptcy filing that they fail to see the benefits of stopping collection activity and discharging their unsecured debts.
Yes, filing for bankruptcy is an admission that you need help to regain your financial equilibrium. However, recognizing that you need help to regain control is the first step toward a brighter financial future. There are three different ways that a bankruptcy filing can set you up for an improved financial situation.
Avoid the worst consequences of your debts
People often don’t file until they have no other options left. Learning about a creditor lawsuit or receiving a foreclosure notice may be the impetus someone needs to finally file for bankruptcy.
The automatic stay brings a halt to collection activity including an imminent civil lawsuit or the possible repossession of your vehicle. Although creditors can ask the courts to lift the automatic stay and allow them to resume collection activity, your filing may make it easier for you to renegotiate the debt.
Reduce what you ultimately have to pay
After you complete the requirements for the form of bankruptcy you file, you can then receive a discharge of the remaining balances of your unsecured debts.
In Chapter 13 Bankruptcy, you may have made payments on those debts for several years. In Chapter 7 bankruptcy, you may be able to discharge unsecured debts like credit card balances and medical debt without making any more payments on them at all. After the discharge, the debt doesn’t disappear, but you no longer have a legal obligation to repay it.
Clean up your credit report and eliminate delinquent account
Dealing with budget shortfalls or slowly accruing credit card balances can mean having multiple negative marks on your credit report. When you file for bankruptcy, all of those bad marks essentially turn into one big blemish from the bankruptcy filing.
While it will have a huge impact on your credit score and credit opportunities right after you’re discharged, the impact of that blemish will go down over time. It will also eventually fall off your credit report.
Seeing the positive aspects of bankruptcy and how it can lead to a better life after your discharge can help you make a more informed decision about your current debt issues.