When a person is trapped under debt, bankruptcy can be the only option for escaping these debts. Yet, individuals may not be entirely sure as to the exact ways that bankruptcy protection can help them with righting their finances.
Protection Against Collection Actions
Being in deep debt can be extremely stressful due to the actions that creditors can take to collect on their debts. For example, individuals can find their possessions being repossessed, lawsuits filed against them, wages garnished, and other serious repercussions. Bankruptcy can make it possible to avoid these problems as creditors will be barred from taking actions against the bankruptcy petitioner until the proceedings have concluded. This can buy individuals the time that they need to settle these matters so that their liability to their creditors is reduced as much as possible.
Restructuring Or Forgiving Debts
One of the most important ways that bankruptcy protection can benefit a person is that it can allow for their debts to either be forgiven or restructured to make them easier to repay. This can be one of the most complicated parts of this process as it will require extensive negotiations between the creditors and the debtor. In order to maximize the results of these negotiations so that the friendliest terms possible can be secured, it is advisable to have professional representation as a bankruptcy attorney will understand the intricacies of negotiating with creditors during this phase of the process. Unfortunately, there are some debts that may not be eligible for being forgiven. In particular, student loan debts and recent tax debts are not eligible for forgiveness, but they can be restructured as part of this process.
Give Yourself A Chance To Rebuild Credit
Having good credit can make many aspects of your life much easier. Unfortunately, being trapped in a debt cycle can make it extremely difficult to build and maintain a positive credit score and history. Many people may avoid filing bankruptcy due to an attempt to protect their credit. However, if your credit is currently being damaged by your inability to repay your debts, bankruptcy can allow you to escape this cycle so that you may actually be able to make progress on your credit. Generally, bankruptcy will leave a blemish on your credit, but its impacts will typically only be relevant for the first few years following bankruptcy. Making a concerted effort to pay bills on time and avoiding debt can help to speed up this process.