No one puts Chapter 7 or Chapter 13 bankruptcy on their wish list of things to do. However, for millions of households facing overwhelming debt, it can be a positive and crucial step to ensure their future financial independence.
Nearly 750,000 Americans filed for bankruptcy each year, on average, from 2016 through 2019. However, the Federal Reserve Bank reports that only a small percentage of people eligible actually file for bankruptcy protection.
What are the facts?
Many people undergoing financial hardships continue to believe myths related to bankruptcy that keep them from taking advantage of the many protections and benefits. If you are one of them, consider these facts:
- You don’t lose everything: Even though the vast majority of these filings involve Chapter 7, most are no-asset cases, meaning you give up few or no possessions. Exemptions exist in Missouri, allowing anyone to keep their car, house and other items necessary for daily life. In Chapter 13, you keep everything.
- Not all debts are forgiven: Bankruptcy typically discharges debts from credit cards, medical bills and personal loans. Other obligations, such as recent taxes, student loans or child and spousal support payments, are not included.
- Paying your bills isn’t always best: Many people struggle to pay off massive debt, thinking bankruptcy can cause more harm. However, the longer you have unpaid and overdue bills on your credit report, the greater the long-term damage will be. A good general rule is if your debts total more than half of your income and it’s unlikely you will pay it off in five years, the best way forward is through bankruptcy.
- Bankruptcy doesn’t equal failure: Nearly 60% of all bankruptcy filings result from massive medical bills in the U.S. and are not due to poor financial management. Rather than reflecting a personal shortcoming, bankruptcy should be viewed as a tool to help you take control of your future.
- Your financial future isn’t ruined: Bankruptcy can stay on a person’s credit report for up to 10 years. However, once a person files, their credit scores usually rebound within a few months. While you face some limitations, access to credit lines also become available soon after.
What’s the best course of action?
Bankruptcy can be a complicated process, and it’s crucial that it’s done correctly. That’s why working with an experienced bankruptcy attorney is the best way to address your unique situation and identify the best strategy. In addition to getting you out of a deep financial hole, filing brings immediate benefits, such as bill collectors and other creditors can no longer contact you.