Bankruptcy is a viable option for debt relief, but it does not come without consequences on your credit score. While your credit score will take a hit, sometimes bankruptcy is necessary to get rid of debt and get back on track. Your bankruptcy will show up on your credit report for up to 10 years, but that does not necessarily mean your credit will be in the tank for that long.
Regardless of your age, if you run into financial trouble you may begin to think about the strategy that can help you reach solid ground once again.
It's easier than ever to obtain a credit card. American's have difficulty saying "no," when it comes to credit card offers. As of 2016, the average debt is quite high. The national average for credit card debt, according to the Federal Reserve, is $935.6 billion. This roughly equates to an average debt, per person between the ages of 18 and 65, of $4,717.00. The overall total national average is higher than it has been since 2011, but far less than it was in 2008.
Numerous studies, surveys and polls (from sources as varied as Harvard University to financial site NerdWallet) have found that the leading cause of consumer bankruptcy isn't reckless spending. It also isn't student loans or divorce. It isn't even the death of a breadwinning loved one. No, these studies consistently found that the number one self-reported cause of personal Chapter 7 and Chapter 13 filings in America is medical debt.
Many of us have been in a short-term financial pinch. It could be that an unexpected car repair, appliance replacement or emergency room visit stretched us thin and left us worried about how to make ends meet until our next paycheck. In those situations, many people will use a credit card, borrow money from a family member or friend, ask their boss for a paycheck advance or dip into an emergency fund to cover unforeseen costs.
The word bankruptcy may seem like a four letter word akin to those your parents always warned you never to speak. In reality, instead of resulting in a mouth full of soap, filing for relief through a petition for bankruptcy can be beneficial in certain situations. This is not always the case, and those who are considering bankruptcy should tread carefully. However, for some, bankruptcy can help in three ways: eliminating unmanageable debt, setting you up for a clean-slate and leading to a better credit score over time.