How Bankruptcy Helps People
You’ve probably heard of people filing for bankruptcy and thought that it is the end of the line for those people, that they have hit rock bottom. While it is true that bankruptcy is supposed to be the last resort option and that it is in no way pleasant, it can actually help a lot of people consolidate their finances are rid themselves of huge financial problems.
We talked to bankruptcy professionals at The Law Offices of Mark L. Miller, who agreed to talk to us on condition that we clearly state that the article following is not legal advice, but rather an overview of what bankruptcy can do for people who are struggling financially.
The Stay of Payment to Your Creditors
Perhaps the most important thing that a lot of people feel is a sense of relief when the constant bombardment of calls and letters from their creditors just stop. Filing from bankruptcy automatically stops all of the payments to your creditors until the situation is resolved.
This breathing room is important for people financially, but it is much more important psychologically. Living in extreme debt and with no way out takes a toll on your mental and physical health, so the first effect most people see is just that – an easing of the tension.
Getting some of the debt discharged is a big reason why people opt for this case. When they feel that they can no longer make their payments on their mortgage, car payments, credit card debt, medical bills, and so much more, being told that you can get some of that debt just erased is a huge deal.
Typically, the types of debt that gets discharged is the uninsured debt, like credit card debt, but also personal loans and medical bills. Sadly, student loans (the bane of many young people) is not dischargeable.
You May Not Lose All of Your Possessions
By now, you should know that there is a trade-off here. Otherwise, people would be racking up massive debts and then just filing for bankruptcy. In the case of Chapter 7 bankruptcy, the most common type for personal bankruptcies, you will lose a lot of your possessions (they will be sold off to pay your creditors).
However, not everything you own will be taken away from you. Thanks to the exemptions enshrined in the bankruptcy law, there are certain things that you get to keep, no matter how much you’re in debt. These exemptions allow you to keep a certain amount of money, as well as some of your possessions. Depending on the local jurisdiction where the case is being processed, you may keep your house, your car, and even some amount of your savings – if you have them.
Credit Score Impact of Bankruptcy
Finally, we can’t talk about bankruptcy without addressing one of the most defining aspects of adult Americans’ lives – their credit scores. Whether we like it or not, our credit score impacts a lot of things in our lives, from housing opportunities, to the ability to get a job or a loan.
Filing for bankruptcy will have a short-term impact on your credit score, driving it down, but it can be recovered through some carefully organized and structured financial planning. Having a clean slate with no debts makes it easier for most people to groom and improve their credit score over time.
If you find yourself in financial problems that you can’t resolve on your own, consult a bankruptcy attorney to see if bankruptcy is the best option for you. Keep in mind that it may not be pleasant, but it might be the way to a better and more stable future.