Bankruptcy is something you may not want to have to use in your life, but there are many times when it's necessary. For someone who suddenly lost a job and hasn't been able to find work, suffered a life-altering disability or has other financial problems as a result of their lifestyle, a bankruptcy could be the difference between getting their finances back on track and struggling with debt for years to come.
Many people don't want to enter into bankruptcy because of the fear that it will ruin their credit. The surprising thing about this fear is that most people who are facing bankruptcy already have ruined credit. Entering into bankruptcy isn't necessarily going to make it worse.
If your credit is still good, then you do want to think carefully before seeking bankruptcy. Bankruptcies will impact your credit negatively, so the level of your current credit is something to consider.
Are there benefits to bankruptcy that outweigh the damage to your credit?
In a manner of speaking, yes. Since the likelihood is that your credit is already poor, then the benefit is that you will have fewer debts in just around three to six months (Chapter 7) or within three to five years (Chapter 13). It's also easier to explain that you entered into bankruptcy because of your inability to pay than to avoid creditors for months or years as you ignore your debts.
If you plan to purchase a home, bankruptcy is said to make it impossible, but that's a myth. The reality is that there are lenders who will give to those who are a higher risk than others. After a few years, the impact of the bankruptcy will be lower on your overall application.
One other thing that benefits those who choose bankruptcy is that you won't have any of the debts that are discharged. That means you can begin to rebuild your life with the freedom in your finances you didn't have before. On top of that, the bankruptcy typically excludes certain assets, so you won't have to start from scratch even if you had to liquidate some assets.
Bankruptcy isn't always looked on kindly, but the reality is that it's a good way to get back your secure financial footing. It typically takes only a few months to complete a Chapter 7 bankruptcy, so you could get your life back to normal in a short amount of time.