The Truth About Bankruptcy: It's a Financial Tool
Many people consider bankruptcy a last resort. As the debts and the collection calls increase the stress mounts and the only reassuring thought for those on the verge of bankruptcy is, at least I haven’t filed for bankruptcy yet.
If this sounds like you, your perspective is understandable. No one looks forward to bankruptcy. You might feel as though you failed or worse, that you’ll never be able to rebound financially. Often though, it’s the stigma of having to file for bankruptcy that keeps people stuck in a vicious cycle of mounting bills and overwhelming anxiety.
Drowning in debt, dealing with overwhelming stress and ignoring calls from collectors, all to avoid the inevitable, is not a healthy or sane way to live. There is a solution. If you’re sick of constantly worrying about how to pay your bills and want to free yourself from the grip of financial burdens, often the best way to do so is to do what you’re avoiding the most.
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Filing for bankruptcy could be the best option for you.
Before you dismiss bankruptcy, you have to separate fact from fiction. Myths about bankruptcy are so common and often keep people stuck in the vicious cycle of stress and avoidance. The next section addresses the most prominent myths.
Myth #1: Bankruptcy is a last-ditch effort to be used only after you’ve exhausted all other options.
In truth, bankruptcy can be an effective financial tool to help you get out from under debt and begin anew. In business, bankruptcy is used to do just that. Both large corporations and small businesses often use bankruptcy as a tool to repay debt and restructure a company. For individuals, bankruptcy is a way to deal with severe debt and the host of negative impacts it has on your life.
Bankruptcy is a good option if you’re struggling to keep up with your bills and you meet the criteria needed to file. Moreover, it’s important to remember that filing for bankruptcy isn’t free. If you’re seriously considering bankruptcy you need to act before you’ve exhausted your financial resources because you will have to pay for the bankruptcy process. But in almost all cases it makes more sense to pay the attorneys fee and filing fee and discharge your debt, than to spend the next 5 years trying to pay a debt you will never be able to pay.
Myth #2: Filing for bankruptcy means your credit is ruined for at least 10 years.
A little known fact is, nearly 50% of people who file for Chapter 7 bankruptcy (the most common kind of bankruptcy for individuals) have credit scores of at least 620 or higher within 4 years. You can even apply for and receive a mortgage within two years of declaring bankruptcy, despite having a bankruptcy on your credit report.
Myth #3: The drawbacks of bankruptcy are many, the benefits are few.
As we stated earlier, no one looks forward to bankruptcy. What it is though is an option to those who meet the specific criteria. If you do qualify, there is no need to be embarrassed or afraid of how it will impact you long-term. Declaring bankruptcy can help you avoid a foreclosure, discharge bad debts, and avoid repossession of your valuables.
How Bankruptcy Works In Rhode Island
- In Rhode Island, you are required to take an online or telephone credit counseling class sometime in the 6 months leading up to your bankruptcy. This is a good thing and often beneficial to your long-term financial health. Sometimes good financial management provides a better option than declaring bankruptcy, especially if a lot of your debt is difficult to discharge.
- Your eligibility to file a Chapter 7 will be determined via the bankruptcy means test, essentially a verification that your finances do, in fact, warrant bankruptcy.
- At Carl P. DeLuca, Attorney at Law, LLC, we’ve helped thousands of Rhode Islanders file for bankruptcy and regain financial footing. We’ll work with you to determine your rights and handle the legal issues associated with your bankruptcy. We’ll make sure you take advantage of any Rhode Island bankruptcy exemptions you’re entitled to. Most people are able to use these exemptions to protect and keep all their assets during and after their bankruptcy.
Call or text Carl P. DeLuca, Attorney at Law, LLC at 401 384-0355
Reasons You Should Consider Bankruptcy
There are plenty of reasons why bankruptcy can be a smart and even responsible financial decision. Often, it’s more advantageous to declare bankruptcy and eliminate some of your debt burdens than to try and pay off more debts than you can handle.
Common types of debt that can be discharged in bankruptcy filings:
- Medical bills (one of the most common reasons for declaring bankruptcy)
- Credit card debt
- Past due rent
- Past due utilities
- Civil judgements (excluding fraud judgments)
- Business debt
Declaring Bankruptcy Can Improve Your Credit
Contrary to popular belief, filing for bankruptcy doesn’t necessarily lower your credit score. In fact, most people see their credit scores increase fairly quickly after declaring bankruptcy. As long as you continue to make good financial decisions, it’s likely that your credit score will increase much faster than if you were struggling to pay your bills.
Reimagine Your Financial Future
If you’re reading this you’re probably considering all of your options. A common trap people fall into is trying to pay off debt with a new credit card or loan. Or worse, they try to pay off their debt using their retirement funds and then still end up filing for bankruptcy. Filing bankruptcy sooner would have protected their retirement funds. Declaring bankruptcy instead of trying to pay debts when the math just doesn’t make sense will help you get a fresh start. It allows you to free up your resources and apply your income to the monthly bills you can’t avoid like your rent, mortgage, car payment and clothing and food expenses.
Even if your credit score is low, you can look forward to a higher score after filing bankruptcy and getting your financial house in order.
Bankruptcy isn’t the worst-case scenario; it can actually make your life easier. Once you have declared bankruptcy you can free yourself from the burden of overwhelming debt. Any remaining debt is streamlined or consolidated, making it simple to manage.
It’s easier to get back on track financially when you’re less stressed and have the freedom to choose how to manage your assets and expenses.
The Solution Is Closer Than You Think
When bankruptcy is on the table, you deserve to know if you are eligible. You might discover that credit counseling, a debt management program or financial aid could be a better option than declaring bankruptcy.
If you are eligible for bankruptcy, it is not a sign that you failed nor does it mean you should avoid it at all costs. Businesses declare bankruptcy all the time. Individuals have the same right to use bankruptcy as a financial tool and a solution to excess debt.