Bankruptcy is a tool that people can utilize when they are in financial peril. Credit cards, bills and other debts can make it difficult for a person to live comfortably.
U.S. News clears up the misconceptions that may prevent a person from seeking bankruptcy as an option.
Bankruptcy will not destroy a person’s credit forever
One of the common myths about bankruptcy is that it destroys a person’s credit. After filing for bankruptcy, a person’s credit does take a hit. Generally, the higher the credit score, the bigger the hit. While the bankruptcy will remain on the credit report for 10 years, the impact will lessen over time. Within about six months, most people can apply for a regular credit card again. Then, within a couple of years, most people have a high enough credit score to buy a house.
To rebuild credit, a person can start with a secured credit card. Most can apply for a secured credit card within the first month after the debt discharge. Secured credit cards require a deposit that a cardholder borrows against.
Bankruptcy does not make a person irresponsible
Forget the idea that bankruptcy means that a person is financially irresponsible. Every year, according to CNBC, about 530,000 people file for bankruptcy because of costs outside of their control. About 66% of all bankruptcies are for medical issues. For others, the reasons for bankruptcy include:
- Unaffordable housing
- Friends or relatives in need of help
- Living beyond one’s means
Debt in the U.S. is common and bankruptcy is one way to help clear the burden.