When bankruptcy is the wise move
Bankruptcy. It’s a scary word. Like you, I was brought up to pay all my bills on time. But sometimes, life places us in situations in which that’s not possible. Like a global pandemic.
While your first instinct may be to make whatever sacrifice is necessary to pay off all your debts, filing for bankruptcy relief may be a sound financial decision.
Attempting to pay down debt on your own can leave you exposed to lawsuits and garnishments, and your credit score may continue to be battered in the process. Many clients I see have struggled mightily before realizing they have no choice but to file for bankruptcy protection. Filing Chapter 7 or Chapter 13 ends collection calls, gives you immediate relief from high monthly bill payments, and in most cases actually improves credit scores.
By choosing to file earlier, your score typically rises instead of falling in a fairly short period of time. Within a year "you're way better off," according to an economics expert and author of a study on the effects of bankruptcy.
Those who filed either for Chapter 7 or Chapter 13 saw their credit scores increase by an average of at least 70 points between the time they filed and the time their cases were discharged, according to study by the Federal Reserve Bank of Philadelphia.
But there are many more reasons that filing for bankruptcy may be the appropriate choice for you. Among them:
Collection efforts against you stop, including wage garnishments and lawsuits.
Freedom from certain debts under Chapter 7, including credit card debt, medical debt and past-due rent or utility bills
Business debts
So how do you know if it’s time to look into filing for bankruptcy? If you can pay your bills, of course you should. Check out your options for debt settlement. But if your debt equals more than half of your income, or if it would take five or more years to pay it off, bankruptcy may be the best choice.
In this case, you need a bankruptcy attorney. The paperwork is complicated and it is too easy to make a mistake that could cause your case to be dismissed and leave you with no relief at all.