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.
Eliminating unmanageable debt
A recent post by Credit.com discussed the pros and cons of bankruptcy. One of the key benefits noted within the post is the elimination of the obligation to repay qualifying debts. Although it is important to be aware of the fact that bankruptcy does result in a large initial hit to your credit score, those attempting to surmount financial challenges should also be aware of the fact that the score takes a hit every time you are unable to make a payment on these debts.
For those who are unable to negotiate with creditors and continue to face financial struggles, eliminating this debt and starting over may be the best option for future financial security.
Setting you up for a clean-slate
When done wisely, a successful bankruptcy petition can also produce a clean slate. In order for this to be true, it is important that the petition is accurate. This means all debts must be reported and all accounts included in the petition. If the petition for relief is successful, double check to make sure all qualifying debts were discharged. This can be done in a number of ways, including a review of your credit report.
Leading to a better credit score over time
The key to bouncing back from bankruptcy is to take a proactive approach. Having debt is not always a bad thing. Owning a credit card and using it can actually help rebuild your credit score. The trick is to pay it off every month. Making regular payments can help you build your credit score.
It is also wise to review your credit score regularly. Bankruptcy will not remain on your report forever. However, if it is not removed automatically after a certain period of time passes (depending on your individual circumstances) you may be able to initiate the removal process.