A fundamental goal of the bankruptcy laws is to give debtors a financial "Fresh Start" from burdensome debts. The U.S. Supreme Court addressed and provided U.S. Citizens with this option all the back in 1934. The ruling to provide bankruptcy as a viable option for those in financial distress stated that "It gives to the honest but unfortunate debtor a new opportunity in life and a clear field for future effort, unhampered by the pressure and discouragement of preexisting debt." This is a powerful statement of public policy, which has been modified throughout the years to provide further protection and guidelines to legally help and protect consumers in times of financial uncertainty.
While it is true that a bankruptcy will typically stay on your credit report from 5 to 7 years, having insurmountable debt which you are unable to manage almost always takes longer to pay off, if you are able to at all.
It has been reported that if you simply make your minimum payment each month on a credit card, it will take 10 - 15 years to pay off that single card, which may show on your credit report long after the card is paid off. The reason for this is that when you make the minimum payment, the credit card companies, as well as other creditors, allocate the payments as "first in first out", meaning they get their interest before money is applied to the actual balance you owe. This tactic keeps you in debt for a longer period of time while credit card companies and creditors maintain a constant profit from you.
The longer you allow yourself to be held hostage to credit card companies, the longer your credit score and financial standing will suffer.
With a bankruptcy:
If you have filed for bankruptcy due to loosing your job as a result of the economy, due to a divorce, an illness or injury which gave you a mountain of medical bills and costs, or any other reason, you can state the reason on your credit report.
If you are trying to continue to manage debt which may be impossible to overcome, you may simply look like an irresponsible spender and a high financial risk. When dealing with housing issues, employment opportunities, or other aspects of life in which a credit check is conducted, a bankruptcy may actually look better for you, because you have taken the proper steps to repair your credit, and are provided the opportunity to provide an explanation for the bankruptcy.
Another important aspect many overlook is that after you eliminate your debt in a bankruptcy, your debt-to-income ratio is greatly reduced and your credit score will increase as a result.
One of the biggest differences in a "bankruptcy-or-not" comparison regarding your credit rating and score is that in choosing to continue to tread water and not file for bankruptcy your credit rating will probably continue to get worse. After a Chapter 7 bankruptcy you can actively start to improve your credit rating within 3 to 3 1/2 months.
In a almost comical turn of events, after a bankruptcy, the credit card companies which refused to work with you previously will start to offer you credit cards again. You see, the credit card companies know that following a bankruptcy you have specific periods of time between eligibility to file another bankruptcy. they will use this opportunity to make money from you during this window. Granted the interest rates will be higher initially, the same companies which held you hostage can now be used to restore and improve your credit score. When you get these new credit cards, make purchases which you are able to manage by ensuring you have the money in the bank to cover each month, making the payments manageable, by paying all or most of the balance off each month, keeping the interest you pay down.
Using the credit card companies in this manner will turn the table of control back to you, and raise your credit score bank to a non-high risk financial status.
When this occurs, you will be offered new credit cards which lower interest rates, which allow you to pay off the balance and cancel the high interest credit cards, walking you back to a respectable financial standing and high credit score.
Maintaining this practice is the best way to secure a brighter financial future and give you the better opportunities for long-term financial stability.
So you see, a bankruptcy does not keep you down, but provide you a way to get a fresh start and improve you credit score much faster than treading the financial waters without a life vest.
It is important to note that following a bankruptcy it takes a commitment to not fall back into the same spending practices which may have contributed to the financial state you are currently in. Use the system responsibly so that you have the power and control of your financial future.
Brian Hizer and Edward Schimmel have the experience and resources to effectively guide you through the bankruptcy legal process. We always strive to provide the highest standard of legal representation to aggressively pursue your bankruptcy legal goals.
If you require experienced legal advice and representation from a qualified Bankruptcy Law attorney (lawyer), please call our offices to schedule a confidential legal consultation.