For many people, the word bankruptcy conjures images of financial hardship. However, bankruptcy is not the cause of someone’s financial struggles but rather the solution to issues with personal debt.
Yes, bankruptcy has a short-term negative effect on your credit score and limits your credit opportunities for several years after you file. However, bankruptcy has a net-positive impact on most people who file.
How does bankruptcy help set you up for a better financial future?
Bankruptcy requires education on credit and debt
Before you even file your petition for bankruptcy, you will have to complete credit counseling. Later, when you get close to discharge, you will have to complete a different kind of credit education. During those two courses, you may learn important information about managing credit and budgeting your finances that will help you avoid financial complications in the future.
Bankruptcy gives you an opportunity to balance your budget
The reason people find themselves filing for bankruptcy is that they no longer have enough income the cover all of their financial obligations each month.
As your medical debt or credit card balances started to increase, the payments you had to make toward them every month increased as well. Eventually, you may have been unable to pay your utilities and mortgage while also making the minimum necessary payments on your debt.
Once you complete bankruptcy and discharge your unsecured debts, all of the money that was going toward your medical bills or credit card balances every month can now go back to your basic living expenses and maybe even into savings.
You are in a perfect position to be much more careful about future credit use
Once you close and discharge your existing lines of credit in a bankruptcy, you will no longer need to make payments on those debts every month.
When you do open a new line of credit or obtain a credit card, you can make a point of keeping your balance low and paying it in full every month. You don’t have to struggle to get back to a neutral point but can instead just start making better credit decisions right away now that you don’t have that insurmountable amount of debt to deal with anymore.
Realizing that filing bankruptcy can drastically improve your financial situation and help you make the right choice when your debt is out of control.