Bankruptcy Recovery Leads to Financial Wellness

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There are millions of bankruptcy filings annually. Although it can be the debt relief some people desperately need, a bankruptcy does come with some negative monetary consequences. But one common myth about bankruptcy is that it is a death sentence to the filer’s credit. Actually, it is possible to eventually recover from the financial ailment of bankruptcy and live a healthier financial lifestyle. 

Various circumstances lead people to the doorstep of the bankruptcy court. Some people find themselves with bad credit due to a job loss, illness, divorce or other unforeseen reason that leaves no other option besides bankruptcy. Failed business ventures result in liquidating company assets via the bankruptcy process. This article will explore the following bankruptcy recovery topics:

- Symptoms of an Impending Bankruptcy

- Which Bankruptcy is Suitable?

- What to Expect During Treatment

- Signs of Recovery

- Staying Financially Healthy

Symptoms of an Impending Bankruptcy

Most sicknesses announce themselves in advance. For instance, a cold or flu may start off as sniffles or a runny nose before it progresses into full blown misery. The same can be said for bankruptcy. Very often symptoms of credit distress show up long before the borrower considers filing. Below are some signs that a borrower may need to file bankruptcy.

  • Consistent inability to pay bills on time-or at all. Using credit cards to pay basic bills like food and utilities is another indication. Over time, making even the minimum payments on credit cards becomes a struggle. 
  • Frequently borrowing money from friends and family and taking out bad credit loans with high interest are other signs that finances are starting to tank. Bankruptcy may be the solution for borrowers buried in debt due to unexpected circumstances.
  • Threat, then the start of foreclosure proceedings because of missed payments. A bankruptcy may be the answer to keep the homeowner from losing their home by halting the foreclosure process.
  • Lawsuits from creditors that result in a judgement for the money owed, plus court costs, attorney fees, followed by wage garnishments. Filing a bankruptcy can put a stop to this action with some exceptions, including child support, criminal fines, student loans, and tax debt.
  • When missing payments becomes extreme, chances are good that the creditor will charge off the debt and it will wind up in the hands of debt collectors. This starts a series of unrelenting phone calls, letters, and other aggressive means to get payment.
  • Stress due to money woes can seriously affect physical health. If a debtor is losing sleep, has headaches or other health problems because of worrying about money matters, bankruptcy may be a consideration.

If an individual makes a habit of carelessly racking up debt, bankruptcy is not the answer. Inevitably, this personality type will relapse back into poor financial practices once a bankruptcy has ended. But for someone who has experienced a financial crisis yet wants to improve their credit over time, a full bankruptcy recovery can be expected upon completion.

Which Bankruptcy is Suitable?

The chances of full recovery from bankruptcy are exceptional, especially if the borrower is equipped with the right information on which one to file. This article provides basic bankruptcy information in two countries, Canada and the United States.

Bankruptcy options in Canada:

There are only two primary types of bankruptcy in Canada, personal and business. Personal bankruptcies are the most popular. A thorough assessment must be made by a Licensed Insolvency Trustee to determine if bankruptcy is the best option for the individual.

Canada offers two types of bankruptcy for businesses. Sole proprietorships and partnerships are treated much like personal bankruptcies. Incorporations file under a much more complicated process since the business, its liabilities, and its assets are considered to be a legal entity apart from the owner. Canadian citizens can also submit a consumer proposal to pay debts that is similar to Chapter 13 in the U.S., although it isn’t a type of bankruptcy.

United States bankruptcies:

Chapter 7

1. Chapter 7 is for people who can demonstrate they don’t have enough income to pay their debt load. Most unsecured debt, such as credit cards, are discharged in this bankruptcy. Other property with liens, such as secured credit like home mortgages and auto loans.

Chapter 11

2. Businesses, usually corporations or partnerships, frequently seek Chapter 11 bankruptcy. It provides an avenue for reorganization which keeps the company viable. Creditors are paid over a period of time.

Chapter 13

3. Chapter 13 bankruptcy is also called a wage earner plan. The filer must have steady income so they can pay back debts over a number of years into a repayment plan managed by a court-appointed trustee. The plan usually runs 3 to 5 years. 

Making a comeback from bankruptcy is possible no matter where a debtor lives.

It starts with recognizing that crushing debt has gotten out of control.

On the way to recovery, it takes a firm commitment to stick to the ins and outs of the process.

Taking an active part in finding accurate information and professional help is next.

What to Expect During Treatment

Going through the bankruptcy process is sort of like taking medicine that tastes bad. It’s equivalent to having to go through painful physical therapy or an invasive examination. At times the bankruptcy journey can be uncomfortable, inconvenient, or even embarrassing. It’s essential to focus on the happy day when the bankruptcy is discharged and finances are on the mend. Over the course of the bankruptcy, filers can expect:

  • A bad credit rating. Chapter 7 bankruptcy remains on the credit report 10 years; Chapter 13 sticks like glue for 7 years. 
  • Excessive interest rates on any credit that is approved.
  • Loss of privacy, since a bankruptcy filing is a matter of public record.
  • Potential rise in insurance costs.
  • Denial of loans or other credit.

Truthfully, people whose credit is severely damaged already experience most of the items on this list without filing bankruptcy. Seeing a bankruptcy through to completion, however, means starting over with a clean slate, free from excessive debt, which opens a whole new world of financial opportunities. 

Signs of Recovery

Somewhere along the journey comes the long-awaited turnaround. The time when the filer sees the light of hope and evidence that they will bring their fiscal situation back to life. Signs of recovery include the strength to exercise discipline with money, which can lead to good credit in the future. Less stress over bills may improve mental and physical health.  

Once the bankruptcy is removed from the credit report, scores steadily increase. The rise in credit score results in lower interest and less costs for bank and other fees, among other perks that come with bankruptcy recovery. The confidence and satisfaction that comes with completing a bankruptcy is worth the effort spent to ensure a firmer financial footing. 

Staying Financially Healthy

Sticking to a bankruptcy program is challenging. The hard work and sacrifice of the bankruptcy process are incentives to maintain control of money management. The credit report will no longer reflect the excessive debt that lead to the filing. As such, after a bankruptcy, (and sometimes during), debtors can expect to receive unsolicited offers of credit including auto loans, credit cards, and retail credit. It is a huge mistake to start the cycle of debt again. 

Consumers are better served by using bankruptcy recovery as the opportunity to have a fresh start. They should continue to practice the good credit habits they were committed to during the bankruptcy. Recovering from a bankruptcy is not an event, it’s the beginning of building a better credit profile for a lifetime.

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Sheila Kay

Sheila Kay is an author, ghostwriter and editor residing in the Atlanta, GA area. Among her favorite writing genres are creative nonfiction, self-improvement, and finances. Her first published book, PTSD and the Undefeated Me, is a memoir which has been a stepping stone to her involvement with mental health advocacy for military and civilian men and women. She is currently working on the first fiction novel to be published under her name. For more information or to purchase her books, visit Sheila’s Author Page on Amazon.com.

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