While businesses who file for bankruptcy are often praised for their efforts to restructure, consumers who file for bankruptcy are often unjustly shunned.
Luckily, though, the Federal Reserve Bank of New York recently released a report that clearly shows the benefits of consumer bankruptcy and debunks some common bankruptcy myths.
The report did this by comparing the financial outcomes of people who filed for bankruptcy with insolvent people who opted to try to repay their debts instead of filing.
We all know about the stigma attached with filing for bankruptcy protection, and we have been told that all of our future credit options will be nixed by filing, but these are just two of the myths that were addressed in the report.
Here are some of the most eye-opening findings:
- The people who filed for bankruptcy ended up having access to more new lines of credit than those who did not.
- The people who filed for bankruptcy ended up opening a larger number of new unsecured accounts because of their additional credit opportunities.
- The people who did not file for bankruptcy ended up showing more financial stress than those who do.
- Ultimately, the FRBNY concluded that their research suggests that “individuals would likely prefer to file for bankruptcy if they could afford it.”
Clearly, there are many mixed messages out there about filing for bankruptcy. While some groups and professionals say that bankruptcy should be a person’s last choice and should be avoided at all costs, the FRBNY’s report clearly shows that it can be the best option for many people.
Talk to an experienced bankruptcy lawyer in your area to determine if Chapter 7 or Chapter 13 might be the best way to get you out of your financial rut.
Source: Fox Business, “How Avoiding Bankruptcy Can Backfire,” Steve Rhode, March 2, 2015