You’ve heard all your life about the negative sides of bankruptcy. People try to scare you out of it, acting like you’ll never get a loan again. Or they try to shame you out of it, saying you have an obligation to pay those debts and doing anything else is wrong.
Both of these perspectives are inaccurate. Bankruptcy is simply a legal tool you can use. It can not only be right in certain circumstances, but it can be the only realistic option. Plus, it’s not going to ruin your financial future forever. There are plenty of ways to build your credit up, and it probably won’t even take as long as you think.
So, since you’ve been hearing the negatives and the myths for so long, let’s take a look at some of the positives.
1. The debt gets discharged.
This is obviously the biggest upside to bankruptcy. Your debt gets taken care of, either through a repayment plan (Chapter 13) or through asset liquidation (Chapter 7).
It’s important to focus on this, though, because not discharging that debt means more missed payments. Every one is a hit to your credit score. People always talk about the hit bankruptcy gives, but they gloss over the fact that it’s often worse to miss payments for months or years, until your assets get reclaimed anyway. Bankruptcy is a proactive approach, by comparison.
2. An automatic stay may be granted.
If you have other legal cases starting up, you may get a stay after you file for bankruptcy. This essentially puts the other cases on hold. It can buy you some time.
For example, maybe a lender is trying to foreclose on a property that your purchased. The foreclosure has to stop until the end of the bankruptcy case. If bankruptcy helps you sort out your financial issues, the property may become affordable again on your new budget, and you can eliminate the threat of foreclosure entirely.
3. Your credit can wind up higher in the end.
As discussed above, your credit score is taking a hit when you can’t pay your debt. This means that properly building it up after bankruptcy may not just get you back to the level it was at before, but it may actually give you a higher score than you had previously. Your debt load is gone. You have new spending habits. You get a chance to prove you can make payments on time. Yes, you’re playing the long game, but the end result may be worth it.
Be sure you understand the realities of bankruptcy. Consider your situation and all of your legal options carefully. Most of all, don’t buy into all of the myths, no matter how often they’re repeated.