One of the most common concerns that I hear from people considering bankruptcy is the social stigma attached to bankruptcy.
A basic quality of human nature is that people are afraid of things that are unfamiliar to them.
Why is there still a stigma attached to bankruptcy?
The truth is that the stigma against debtors has greatly diminished over the last 20 years, and there is no indication that debtors will be treated less favorably in the future.
In fact, it is easier to reestablish your credit after filing for bankruptcy than it has ever been before.
Chapter 7 or Chapter 13 bankruptcy can stay on your credit report for up to 10 years, but you will probably start re-establishing your credit immediately.
Why do you need to re-establish your credit rating?
To understand why, it is useful to define credit:
- Credit is the ability to borrow money
Lenders determine whether or not to lend you money by examining your debt to income ratio; how much outstanding debt you have compared to your income.
- The reason that your credit is poor right now is because you have so much outstanding debt
After you file a bankruptcy, much of your debt will be wiped out.
Ask yourself, who would you rather loan money to:
- Person A
- Who has $20,000 in credit card debt and could file bankruptcy at any time
- Person B
- Who filed bankruptcy
- Has no outstanding debt
- Cannot file another bankruptcy for several years
Does filing for bankruptcy really help improve credit?
You might be surprised to learn that it does:
- Many of my clients can purchase a vehicle on financing the day they receive their bankruptcy discharge
- They often pay a slightly higher interest rate than a person with unblemished credit,
- But ask yourself – how low of an interest rate would you be able to get in your present situation
- You should be able to finance a home within 2 years after receiving your bankruptcy discharge
- Especially if you have a down payment and enough income to make the monthly payments
Most of my clients receive pre-approved credit card offers within a month of filing their bankruptcy, months before they even get their discharge!
I warn you not to listen to rumors of the Chapter 7 or Chapter 13 stigma attached to bankruptcy that you may hear from friends or family.
Although they have your best interests in mind, they may not possess the complex knowledge of bankruptcy law necessary to give legal advice.
As we know, a little knowledge can be a dangerous thing.
The stigma attached to bankruptcy is disappearing even faster in these tough economic times where more and more people are seeking bankruptcy protection.
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