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A Fresh Start: 4 Reasons Bankruptcy Is Not As Bad As You Think

When we think of bankruptcy we often think of irresponsibility with money, but job loss, divorce, tax liens and credit card debt are some other possible reasons that people might choose to file for bankruptcy. But according to a Harvard study 62% of all bankruptcies are actually the result of medical debts. One type of debt that can’t be discharged through bankruptcy is student loans.

Regardless of the reason that you find it necessary to file for bankruptcy, it’s important to remember that this process isn’t as bad as you think. In fact, there are benefits that you can potentially reap from filing for bankruptcy.

No More Calls From Creditors

BankruptcyBeing constantly harassed by creditors is one of the things that makes being in debt so stressful. Creditors want their money, and they will nag you until they get it. However, you will no longer have to worry about this if you file for bankruptcy. Your creditors are required by law to stop contacting you after you file for bankruptcy. If the creditors do contact you, then they can be penalized.

Cancel Your Debt

Debt FreeThere are three types of bankruptcy. Chapter 7, Chapter 11 and Chapter 13 bankruptcy. But Chapter 11 only applies to Corporations. Chapter 7 bankruptcy sells off your assets and eliminates your debt completely (even if the value of your assets doesn’t cover all of your debts). If you file for Chapter 7 bankruptcy, then you will be able to get rid of your debts within 90 days.

Chapter 13 bankruptcy is where you make payments on your debt.  Working with an attorney to file bankruptcy could be a good way to decide which type of claim is best for you. In Chapter 13, your attorney will negotiate a payment plan that is acceptable to all parties and your debts will be discharged after the payment plan is complete. In Basic Bankruptcy Facts You Should Know we discuss the differences between these types of bankruptcy.

Rebuild Your Credit

Your credit score will go down after you file for bankruptcy. However, you can start rebuilding your credit immediately after the bankruptcy process is done. In fact, many people have noticed that their credit score increased by 100 points within a year of filing for bankruptcy.

You can also apply for credit cards and loans after you file for bankruptcy. You probably will not be able to get the best interest rates. However, if you consistently make payments on time, then you will be able to rebuild your credit.

Will Everyone Know?

Many people are ashamed to file for bankruptcy because they don’t want their friends/co-workers to know. Unfortunately, bankruptcy is a matter of public record. When you file for bankruptcy, the court will notify all of your creditors (i.e. anyone you owe money). Also, the court will notify anyone who co-signed a debt for you, since they may be liable for covering some of these debts in the bankruptcy process. But if your friends or co-workers don’t fall into either or those categories, then you don’t have to tell them. So unless they  happen to discover it through a chance contact at the court they will probably never find out.

In the past, filing for bankruptcy was a major black mark on your reputation, but as we stated earlier many people have filed for bankruptcy through no fault of their own i.e. medical debts. Filing for bankruptcy is a life-changing decision. However, it does not have to ruin your life. In fact, filing for bankruptcy is designed to give you a second chance. You will be able to get a fresh start financially, get rid of your debt and stop harassing phone calls. Furthermore, no one has to know that you filed for bankruptcy. However, you do need to budget carefully to ensure that you don’t end up in the same situation all over again.

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About Tim McMahon

Work by editor and author, Tim McMahon, has been featured in Bloomberg, CBS News, Wall Street Journal, Christian Science Monitor, Forbes, Washington Post, Drudge Report, The Atlantic, Business Insider, American Thinker, Lew Rockwell, Huffington Post, Rolling Stone, Oakland Press, Free Republic, Education World, Realty Trac, Reason, Coin News, and Council for Economic Education. Connect with Tim on Google+