How Filing for Bankruptcy Can Help You Recover From a Financial Loss

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Filing for bankruptcy can feel like a big step after suffering a major financial loss, but, for some people, it can actually help put them on the road to recovery. According to Adrienne Hines, an Ohio-based workers' compensation and bankruptcy lawyer, filing for consumer bankruptcy may help eliminate certain kinds of debt or help people create debt repayment plans. 

“Bankruptcy offers you the ability to restart your financial life with an investment of $1,500 or less,” Hines tells CircleAround

While filing for bankruptcy can initially feel counterintuitive, it helps some people focus on how to meet their basic needs and get out of snowballing debt. Such debt can negatively impact a credit score and give creditors reason to take legal action. All of this can be overwhelming, which is why Hines encourages her clients to explore all options, including bankruptcy, when looking to create a fresh start financially.

“Bankruptcy offers a way for us to walk away from a tremendous amount of unsecured debt, such as medical debt or credit cards,” she says. “We get to shed the excess financial burden and shift the focus to securing housing, food, and the health and safety of our family.”

According to Hines, there are a few ways that a bankruptcy filing can help if you’re in debt. The first concerns something called automatic stay, which helps limit the access creditors have to you. This means phone calls, letters, and any other means of communication from creditors ends as soon as you file for bankruptcy. 

“The automatic stay applies only to bills that existed at the time of your bankruptcy filing and that were included in your bankruptcy,” she explains. “It does not apply to new bills you acquire after your filing. For example, if you are facing an electricity shut-off and file bankruptcy, your utility bill gets reset on the date you file. The automatic stay no longer protects you if you fall behind again after you file bankruptcy. When that occurs, the electric company can then shut off your service.”

The other advantage to filing for bankruptcy is a chance to eliminate or reorganize your debts over a longer period of time. Whether your debt will be discharged completely, or if you will be given a period of time to pay it off, depends on the state you live in

Hines emphasizes that not all debt — student loans, child support, alimony, and some taxes, for example — can be discharged. On the other hand, you may be able to cancel debts such as credit card debt, medical bills, personal loans, and past-due mortgage payments. 

“Once your bankruptcy is over, you no longer have any legal responsibility for the debts discharged in your bankruptcy filing,” Hines explains. “Your creditors are no longer allowed to attempt to collect payment of those debts from you. You can move on with rebuilding your finances and your credit.”

It should be noted that filing for bankruptcy does affect your credit score, and can remain on your credit report for as long as 10 years. Hines notes that you may be able to get credit after your discharge, but you’ll probably pay a higher interest rate and qualify for lower credit limits.

“It is possible to rebuild your credit after a bankruptcy by using credit wisely and paying your bills on time,” she adds. “I know this is a tough time and you’ve internalized it. At the same time, as you heal, remember you still have a chance to rebuild.”

While bankruptcy is certainly an option for those who qualify, it shouldn’t be taken lightly and should really be used as a last resort. Payments can often be negotiated, repayment plans can be created, and other alternatives can help relieve the issues before bankruptcy comes into play. Speak to a bankruptcy lawyer or specialist to find out if filing for bankruptcy is right for you. 

If you find that this is the route for you, know that there’s no shame in asking for help and exploring various options and resources when you’re in a tough financial situation. Being able to keep creditors at bay, and getting qualifying debt discharged, could be exactly what you need to get back on track. 

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Written By

Katka Lapelosová

Katka is a writer from New York City, currently living in Belgrade, Serbia. See Full Bio

CircleAround will make financial distributions to benefit current Girl Scouts: the next generation of trailblazers who will CircleAround after us. So CircleAround for inspiration, and CircleAround the leaders of tomorrow. CircleAround is owned by One GS Media, a subsidiary of Girl Scouts of the USA.

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