A negative attitude about bankruptcy is relatively common. While bankruptcy can be a powerful resource for businesses and individuals dealing with financial challenges, many people are judgmental about bankruptcy.
They fall victim to the common bankruptcy myth that filing is a sign of failure. Nothing could be further from the truth. Many businesses that pursue bankruptcy proceedings correct their financial issues and become profitable again. A large percentage of individuals who file for personal bankruptcy end up in better economic circumstances after addressing major debts and financial challenges.
A successful bankruptcy can lead to improved financial circumstances. How can a bankruptcy filing benefit an individual?
Preserving valuable property
Many people mistakenly believe that bankruptcy could cost them everything. However, most types of bankruptcy don’t involve liquidation or the forced sale of assets. Liquidation is only necessary in a Chapter 7 bankruptcy. Even then, there are exemptions available. Instead of putting people’s property at risk, bankruptcy can protect property from creditor actions. A timely bankruptcy filing can prevent foreclosure or vehicle repossession.
Eliminating certain debts
Those filing for bankruptcy often have a few financial obligations that have caused overwhelming pressure. Maybe they have medical debts due to out-of-network medical care they needed while on a business trip. Perhaps a credit card balance spiraled out of control due to a job loss. A successful bankruptcy filing results in the discharge of eligible unsecured debts. Filers can eliminate the legal obligation to pay off credit card balances, medical debts and other eligible debts. They may then be able to rework their budgets and regain control of their finances.
Improving creditworthiness
At first glance, filing for bankruptcy may seem like a way to destroy an individual’s credit score. Credit scores drop significantly when people file, and the credit bureaus report the discharge for years afterward. However, the record of a bankruptcy is a single blemish that could replace numerous past-due accounts and creditor judgments. Additionally, if the filer is assertive about fulfilling their financial obligations, they could build a better credit score before the record of the bankruptcy even comes off of their credit report.
Learning more about how personal bankruptcy can help people may make it easier for filers to take control of their finances. Instead of being a sign of failure, filing for bankruptcy represents initiative and creative problem-solving in many cases.