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When bankruptcy can be a good choice

New Hampshire consumers who are struggling with overwhelming debt are often hesitant to file for bankruptcy. While it is considered to be an acceptable option for businesses that need to reorganize debt, personal bankruptcy is both highly stigmatized and surrounded by myths. When a debtor is insolvent, bankruptcy is often a much better option in the long run than is struggling to pay debts through a debt management plan.

A report issued by the Federal Reserve Bank of New Yorktraced the effects of bankruptcy versus doing nothing for those debtors who either chose to file bankruptcy or who instead struggled along with trying to make debt payments. When the authors looked at the access to new lines of unsecured credit between the two groups, those that had filed personal bankruptcy had better access to new credit than did the other group over a four-quarter period.

Successfully going through bankruptcy can free up consumer credit, allowing filers a better ability to then access new sources. The study demonstrated that post-filing, most consumers demonstrated a significant increase in their credit scores, and many were also able to qualify for mortgages with better interest rates a few years afterwards.

People who are struggling with overwhelming debt may want to give personal bankruptcy serious consideration. In some situations, it simply makes sense for a person in such a position to think about bankruptcy as a potentially positive option. By freeing up income, bankruptcy may provide a filer with the ability to devote money to retirement savings and other investments that can provide for better long-term financial health. Those who are struggling with significant levels of unsecured debt may thus want to seek a consultation with a bankruptcy attorney about the debt relief options they have.

Source: FOX Business, "How Avoiding Bankruptcy Can Backfire", Steve Rhode, March 2, 2015

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