Millions of Americans face overwhelming debt, and the number having trouble making payments could reach as high as 67 million due to the current pandemic, according to a recent survey by the financial website WalletHub.
For many, bankruptcy can be a positive step for erasing debt, putting an end to collection calls, lawsuits and wage garnishments. Despite some of the adverse effects, it can also be an essential part of rebuilding your credit.
How does bankruptcy help rebuild your credit?
Credit bureaus and financial experts say filing for bankruptcy can take a severe toll on a person’s credit score. However, people who struggle with debt may have already seen those effects by the time they file for Chapter 7 or Chapter 13. Financial experts say credit can start to rebound within a year of filing and there are other benefits, including:
Halting collection efforts: People who opt for bankruptcy are protected from the worrisome and often threatening calls of collection companies. An automatic stay is issued prohibiting debt collectors from contacting them.
Freedom from certain debts: Chapter 7 bankruptcy can discharge several kinds of debt, including:
- Medical debt
- Credit card balances
- Past-due rent
- Past-due utility bills
- Personal loans
- Most civil judgments
- Business debts
- Some older tax debts
Improving access to credit: People who complete bankruptcy are likely to see new lines of credit within 18 months compared to those who fell behind on payments by 120 days or more and didn’t file. While credit limits may be lower at first, many people see their score start to improve after a few months.
Determine the best plan for your situation
Many people feel obligated to pay what they owe. However, those facing overwhelming debt are often in that situation through no fault of their own. An experienced bankruptcy attorney here in Ohio can help determine the best path to regaining your financial independence.