In a recent interview, I highlighted the reasons filing for bankruptcy is often the best solution for people in debt.
When asked to comment, I said, “If someone is unable to pay off their debts while paying for necessities such as food and shelter, then they should look into filing into bankruptcy. An experienced bankruptcy attorney can offer advice on the type of bankruptcy to file based on a specific situation.”
Even though many people are eligible, I added, many are unwilling to file as they assume bankruptcy can prevent them from ever getting credit again. However, declaring bankruptcy does not do this, and it can be helpful in a number of ways.
One of the immediate benefits of declaring bankruptcy is that it puts an end to collection calls, lawsuits, and garnishments which are often the largest sources of anxiety among our clientele. It can even stop foreclosure lawsuits and foreclosure sales.
When asked to elaborate, I said, “As soon as someone files for bankruptcy, they are granted an ‘automatic stay,’ which puts an end to all collection calls. Furthermore, this saves someone from getting their wages garnished or from having a lawsuit filed against them.”
Another advantage is that it erases most debts depending on the type of bankruptcy.
“Most people are unaware that filing for bankruptcy can give them a new start in life with a clean slate. Under Chapter 7 bankruptcy – which is the most common type – you can free yourself from credit card debt, health care expenses, loan payments, and business debts,” I said.
Contrary to common belief, I added, declaring bankruptcy often helps – not hurts – credit ratings.
“Because a lot of people put declaring bankruptcy on the backburner and default on their payments, their credit score takes a dip. However, they can recover their credit scores about a year after filing for certain bankruptcies,” I said.
A 2014 study done by the Federal Reserve of Philadelphia found that people who filed for Chapter 7 bankruptcy were able to rebuild their credit scores from an average of 538.2 to 620.3.
“Ultimately, filing for bankruptcy means that people are able to hit the reset button on their financial lives,” I said.