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. It is this fear of the unknown that often keeps people from learning about Chapter 7 or Chapter 13 bankruptcy as an option to end their financial hardships. 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. It is true that 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.
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. Remember that the reason that your credit is poor right now is because you have so much outstanding debt. After you file a Chapter 7 or Chapter 13, much of your debt will be wiped out. Ask yourself, who would you rather loan money to: the person who has $20,000 in credit cards and could file Chapter 7 or Chapter 13 bankruptcy at any time? Or the person who has already filed Chapter 7 or Chapter 13 bankruptcy, has no outstanding debt, and cannot file another bankruptcy for several years?
Many of my clients are able to purchase a vehicle on financing the day they receive their bankruptcy discharge. Often times they will pay a percentage point or two higher 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 bankruptcy stigma that you may hear from friends or family, who may not possess the complex knowledge of bankruptcy law necessary to give legal advice. They probably have your best interests in mind, but a little knowledge is a dangerous thing.
The stigma of bankruptcy is disappearing even faster in these tough economic times where more and more people are seeking bankruptcy protection. Call us today to set up your free consultation and learn more about using bankruptcy as your first resort to get rid of your financial problems, instead of your last resort.
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