When you hear the word bankruptcy, you likely envision a lot of horrific consequences. You understand that bankruptcy negatively affects your credit for years. You know that bankruptcy often results in home and property loss. And of course, you worry about the effect bankruptcy may have on your personal reputation.
But a lot of people forget that bankruptcy does come with a few benefits.
Although bankruptcy is often considered a last resort during a financial crisis, filing for bankruptcy could save you from hassling debt collectors and give you a chance to start over debt-free. When filed correctly, bankruptcy could help you in the following ways.
1. You Can Enjoy Better Financing Rates
When you drown in debt, other creditors will see you as a liability rather than an asset. The longer you go without paying your bills on time, the worse your credit becomes, and the less wiggle room creditors will give you.
Eventually, you'll have a hard time applying for personal loans, car loans or even new credit cards. And the few companies willing to work with you will hit you with high interest rates to compensate for your risky business.
However, when you file for bankruptcy, you have to wait another eight years before you can file again and receive another debt discharge. Creditors know you won't be able to ditch your debts anytime soon, and as a result, they'll be more willing to work with you to ensure you pay your bills.
If a personal misfortune resulted in a home foreclosure or a temporary setback kept you from obtaining a fresh line of credit, bankruptcy could be the help you need to enjoy better rates and rebuild your credit.
2. You Don't Have to Worry About Employer Discrimination
Credit collection agencies take outstanding debt seriously. In an attempt to get their owed payment, they may seek a court order to contact your employer and garnish your wages.
For many employers, wage garnishment reflects poorly on employees. If you can't handle your own finances, your boss may wonder if you have the skills or responsibility to handle the business assets or finances. Such a tense situation could put your job, and your ability to pay your debt, on the line.
However, the Bankruptcy Code states that employers may not terminate employment (or discriminate against) those who file for bankruptcy. Furthermore, federal government agencies cannot take your bankruptcy status into consideration when they review your application for a job.
Of course, employers may choose to fire you for other reasons. But when you perform well, you shouldn't have to worry about lower salary, denied promotions or lost raises when you file.
3. You Can Raise Your Credit Score Faster
When you initially file for bankruptcy, you can expect your credit score to take a hit, often by as much as 130 to 250 points. So if you were to have an average 680 credit score before your financial setback, you can expect your credit score to drop to a low 530. As anything lower than 600 is considered bad credit, many creditors will likely deny your applications for loans or credit cards.
However, much of your credit score depends on your total outstanding debts and your payment history. When you file for bankruptcy, you no longer have any debts and late payments to drag down your score. With a few years of careful money management, you could rebuild your credit score faster than if you were to continue to struggle with irregular payments and high debts.
Talk to a Lawyer About Bankruptcy
Even with the above bankruptcy benefits awaiting you, the process will likely seem overwhelming and frightening at first. Bankruptcy can look like a dark tunnel over your finances, but with a little help, you can see light at the other end.
To determine if bankruptcy is a good solution for you and your family, talk to a professional lawyer about your options.