With rising medical costs, high unemployment and other economic consequences for middle- and low-income families, it’s not surprising that thousands of people file for bankruptcy every year. The more puzzling question is why more people don’t.
Fewer than 1% of American households file for bankruptcy each year. In 2019, 752,160 individuals filed, while about 14% of all U.S. households, about 17 million, have massive debts, according to the Federal Reserve Bank.
Filings are down in 2020
While only a fraction of people with overwhelming debt file for bankruptcy each year, filings dropped dramatically during the second quarter of this year, totaling only about 60% of the previous five-year average.
Some say that’s because bill collectors aren’t as aggressive during the pandemic, while others are taking a wait-and-see approach to determine if filing down the road will be of more benefit. However, the real reasons might be a lack of information, fear and misplaced optimism.
Overcoming myths and fears over bankruptcy
Waiting too long to file for bankruptcy can drain retirement funds and savings that could have been protected. Credit scores also take a beating while filing for bankruptcy typically leads to higher scores within months. That’s why it’s important to dispel certain misconceptions over the process:
- You don’t lose everything: Too many people fear that bankruptcy means giving up all of their possessions. In reality, you may not have to give anything up by filing either Chapter 7 or Chapter 13.
- Credit scores rebound sooner: While a bankruptcy filing can stay on a credit report up to 10 years, people can rebuild their credit sooner and gain access to new lines of credit much quicker than if they do nothing or pursue a debt consolidation plan.
- Unrealistic optimism: Some people simply believe that “things will get better.” However, putting off dealing with massive debt can lead to even longer-term financial issues.
Set a course for financial recovery
Filing for bankruptcy brings immediate relief and protections, such as halting all actions by debt collectors and other creditors. It also provides protections for retirement funds and other assets. But the process and paperwork are complicated.
An experienced Indiana bankruptcy knows that everyone’s situation is different and can guide you through the process to find the course that best suits your needs. Instead of facing the unknown, your lawyer can provide a step-by-step path to return you to financial freedom.