Bankruptcy Recovery Leads to Financial Wellness

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

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.

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.

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.

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.

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:

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.