Whenever the word, “bankruptcy” is mentioned, there is a certain negative connotation to it. The term has endured a ton of backlash because it serves as an indicator for poor decision-making and dishonest activities. But there are legitimate reasons why people file for bankruptcy. These reasons have been drowned amid negative misconceptions. When all else fails in a financial crisis, filing for bankruptcy can be seen as the last resort. Regardless of its unfavorable side, declaring bankruptcy could alleviate consumers of major burden.
What leads to declaring bankruptcy?
Bankruptcy is not always caused by mismanagement of funds. Harvard University reported that the main cause of bankruptcy is medical-related expenses. More often than not, bankruptcy is caused by unforeseen events. From the guy who got fired a week ago to the lady spending a whopping sum on her health, bankruptcy can prey on anybody, it just depends on the situation.
Why file for bankruptcy?
The decision to file for bankruptcy is often faced with skepticism as it greatly affects a person’s finance in the long run. Needless to say, it also comes with many benefits.
- Granting of automatic stay: Also known as stay relief, an automatic stay is a court order that disallows creditors from collecting possessions owed by the debtor over a period of time. This grant is temporary giving debtors enough time to recuperate and settle debts without fear of any actions from the creditor.
- Fresh start: Filing for bankruptcy allows you to do damage control and have a new beginning when it has been lifted. After being burdened with debts, it is relieving to know that they have been taken care of. Getting out of bankruptcy could enable you to build back your finance.
- Debt relief: Debts like medical bills, personal loans, or even loans from unsecured credit cards can be canceled. These are known as dischargeable debts. The bankruptcy court can provide relief for debtors by eliminating debts which they deem fit. Debtors can improve their credit score if their debt is cleared since their debt to income ratio will be low.
- Financial counseling: A criteria for filing for bankruptcy is meeting with a counseling agency. This follows a course in financial management that must be completed by the debtor. Taking a financial course will be beneficial to a debtor in the long run as they would have a good understanding of finance as well as knowing the right measures to take.
While acknowledging the benefits, one must not ignore the fact a lot of damage control would have to be done after filing for bankruptcy. Credit cards could be canceled, employment might be a tad bit harder and the social stigma that comes with it can be devastating. But there is still hope to get back to your feet regardless. A major target area should be keeping a good credit score. It is advisable to go use cash only more frequently, keep track of your credit, and made sure that payments are made regularly in due time.
Bankruptcy is no doubt a difficult challenge to encounter but the right sources could help you pull through. Just like there are amazing services like professional tax resolution agencies to handle taxes, there are also services to help with bankruptcy.