People tend to mentally associate bankruptcy with financial struggles. They assume that someone preparing for bankruptcy has a lot of debt or lacks adequate income. People may also expect that person to experience ongoing financial challenges in the future.
While it is true that financial instability often inspires people to file for bankruptcy, continued instability isn’t necessary after a successful bankruptcy filing. The goal of bankruptcy is actually to improve someone’s economic circumstances so that they and their immediate family members can enjoy financial stability after the bankruptcy.
How can a successful bankruptcy filing help put someone on the path toward improved financial stability?
Preventing damaging collection activities
Debt can be very stressful, but collection effects can cause lasting harm. Aggressive attempts to collect on debts can do long-term financial damage to a person who has fallen behind on their obligations.
Creditors can repossess financed vehicles. They can obtain liens against real estate. They can also potentially garnish an individual’s wages.
Successful attempts to use the legal system to collect on a debt can cause financial struggles that persist even after bankruptcy. People who file for bankruptcy to halt aggressive collection activity can potentially protect their resources and future income.
Eliminating specific financial obligations
A successful bankruptcy ends with the discharge of eligible debts. People can eliminate medical debts and credit card balances along with certain other financial obligations.
By getting rid of certain financial obligations, filers can free up their resources to pay toward other obligations, such as mortgages and other necessary debts. By reducing the overall financial obligations an individual has, bankruptcy can make it easier for them to balance their household budget.
It’s also worth noting that the mandatory credit education requirements for bankruptcy can help people better understand their financial obligations and the debts that they incur. The process of eliminating certain debts can make people more aware of their financial circumstances and may help motivate them to be more proactive about managing their resources in the future.
Filing for personal bankruptcy can be the first step toward financial stability after months or even years of economic uncertainty. Those who choose to file may need help making the most of the process for improved financial stability in the future, and that’s okay.