Bankruptcy has certainly been portrayed as a last-ditch effort to rid a person of debt. It has been scrutinized and villainized in the media, so it isn’t surprising when people believe that it is their last option and should be avoided at all costs.
Bankruptcy is nearly always shown as a last resort, but the truth is that it is just one of several options people have to get back into control of their finances. In many cases, people are already at a point where bankruptcy is a helpful, viable solution, but they refuse to consider it because of the myths that surround it.
Is bankruptcy a “nuclear option?”
While some people say it is because of its impact on a person’s credit or because it may limit your access to loans for a short time, the reality for many is that their credit is already poor and that they would likely not be able to qualify for other financial options like personal loans or mortgages. In those circumstances, a bankruptcy isn’t going to wipe out their credit in any significant amount, and it likely won’t make their ability to seek a loan or credit any more hindered than it already was.
That being said, bankruptcies can stay on your credit for seven to 10 years, so it is going to be an active part of your credit report for several years. As time goes on during that period, the weight the bankruptcy has will lessen, allowing better access to credit, loans and other financial services.
When should you consider bankruptcy?
It is time to consider bankruptcy when you’re falling behind on bills and can’t see a way to catch back up. If you’re behind on your bills by 60 to 90 days, you’re getting precariously close to when most companies will send those accounts to collections. Before that happens, you may be able to seek bankruptcy and prevent some damage to your credit score. While the bankruptcy will drop your score, it may not have as much of an impact as you expect. On top of that, you’ll be much closer to having fewer debts and better control over your finances moving forward.