To many people, bankruptcy is synonymous with tough times. It certainly is true that most people only turn to bankruptcy during moments of extreme financial hardship. Whether the situation is the result of an unexpected medical event that created significant debt or a downturn in income that left someone unable to repay their credit card balances, bankruptcy often comes from stressful situations.
Constant creditor calls, lawsuits that could end in a garnishment or threats of foreclosure are often what push someone to file for bankruptcy. However, while bankruptcy may often arise out of financial hardship, it may actually offer you a pathway to a better future. What is the bright side of bankruptcy?
Bankruptcy means there’s nowhere to go but up
If your debt were a hole, decisions like loan consolidation or balance transfers for credit cards are really just a way for you to dig a deeper hole. Instead of getting you back on solid ground, such efforts only push off the most pressing concerns about your debt without resolving the underlying issue, which is the high balances that you currently carry.
With a successful bankruptcy filing, you will not only put an end to aggressive collection efforts by companies that you owe money to but will also secure a discharge that eliminates your obligation to repay unsecured debts like credit card balances and medical bills.
Bankruptcy will give you a chance to rework your budget
Trying to balance your budget when you have multiple large minimum monthly payments to credit card companies or other creditors can be a financial nightmare. If you don’t have enough money to go around, you may find yourself constantly accruing late fees and over-limit fees on the balances for various debts at the same time that they continue to accrue interest.
Those payments could eat up so much money that you struggle to pay your mortgage or buy groceries. When you eliminate those unsecured debts and their large monthly minimum payments, you will have more money to cover your necessities and possibly even money to put into savings every week.
The damage to your credit is short-lived
Filing for bankruptcy often drags down your credit score by dozens of points. However, multiple negative marks on your credit score can have a similarly damaging effect. Instead of having multiple negative marks on your credit report, you will simply have one mark from the bankruptcy.
The impact of that bankruptcy on your creditworthiness will diminish the longer it’s been since your discharge. You may be able to get a credit card in just a few weeks and could qualify for a mortgage or similar large-scale credit within only a few years of your discharge.