If you are struggling to manage your bills, you are not alone. A recent report by Reuters notes that bankruptcy filings have increased in the first quarter of 2022. In fact, the rate of new bankruptcy filings grew by more than 30% in March compared to February of 2022. Experts state the end of federal aid packages is one factor that led to this increase. These experts also predict the jump in inflation and interest rates will trigger additional increases in bankruptcy filings throughout 2022.
If you are part of this group and are considering bankruptcy, know you are not alone. Whether or not to move forward with bankruptcy is not an easy decision, but there are situations when it is the right choice for your financial future. One key question that often comes up when people are considering filing for relief through bankruptcy is the impact the process will have on their credit score. In some cases, it can actually help raise your credit score. Ask yourself the following three questions to see if this would be true in your situation.
#1. Is my credit score already low (and dropping)?
If you are struggling to make payments and your credit score has already taken a hit, it may be a good time to consider bankruptcy. It is true that bankruptcy will result in an immediate negative impact on your credit, but the fact is it also removes the bills that were already draining your credit score.
Your credit score drops whenever you make a late payment or miss a payment for a bill. Every single time. This slowly chips away at your credit score. In some cases, you are better off dealing with the one big hit to your credit score that comes with bankruptcy. This is because it will free up funds to pay off other bills and let you build your credit score back up. By making payments on time and taking other steps to recover after bankruptcy you can use the fresh start that comes after bankruptcy to help rebuild your credit score.
#2. Do I have the “right” kind of debt?
A Chapter 7 bankruptcy can get rid of credit card debt, medical debt, past-due rent, and utility bills as well as business debts. Those who have this type of debt and qualify for a Chapter 7 bankruptcy can get it discharged or forgiven. This is important because it will free up funds so you can pay off other debts that do not qualify like certain tax debts and some student loans.
Once you can start paying off those debts regularly, you can start rebuilding your credit.
#3. Is my debt unmanageable?
In general, if the debt you need to pay off is more than half of your income it is a good idea to consider bankruptcy.
It is also important to note that saving your credit score is just one reason to consider a fresh start through bankruptcy. A successful petition for bankruptcy will stop contact from creditors, as it initiates a court ordered automatic stay. This essentially means the court requires all creditors stop trying to get payment. No more calls. No more texts or emails.
This court order also stops any garnishments. Wage garnishment occurs when a creditor is able to take money directly from your paycheck.
Deciding to file for bankruptcy is not easy. As a result, it is wise to discuss your options with an attorney to see if bankruptcy is the right choice for your financial health.