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Finding Strength in Bankruptcy
Date: Jan 1
One common myth about bankruptcy is that it's a defeat. It's fairly common for people to look at those who file bankruptcy, particularly businesses, as washed up. As one who has helped hundreds of people file bankruptcies, though, I find that the reality is the opposite. Generally, those who file bankruptcy emerge stronger financially for having gone through the process.
A recent news item illustrates this. In November, a Kansas City-area restaurant chain Bread & Butter Concepts
filed for bankruptcy. In a statement to the press about it, the company explained that they didn't want to file bankruptcy, but doing so would allow them to continue providing for their employees and customers. Perhaps most importantly, they said they "have every intention of coming out on the other side a much stronger company, and one that will be in Kansas City for another ten years and beyond."
There are many differences between personal and business bankruptcy, but this concept - that those who file bankruptcy are usually financially stronger on the other side of it - is common to both. Whether it's an individual, a married couple, a family, or a business who is filing, one of the primary purposes of bankruptcy is to emerge from bankruptcy stronger and more financially stable for it.
How does bankruptcy strengthen those who are struggling financially? There are several ways. People considering bankruptcy are already in a tight spot, often due to unexpected medical bills, layoffs, or other unfortunate events. They get behind on payments, which in turn creates late fees and higher interest rates. These additional fees have the effect of financially dog-piling those who are struggling. The Automatic Stay
, which goes into effect as soon as bankruptcy papers are filed, is like a football referee blowing the whistle - the creditors all have to back off and give those who are struggling financially some breathing room and a chance to get back on their feet.
Another way bankruptcy helps those who are struggling become financially stronger is that the burden of debt is lightened. In both Chapter 7
and Chapter 13
, the debt is reduced to a manageable load or even eliminated altogether. This empowers those who were struggling to get back to taking care of the basics - rent or mortgage payments, food, car payments, etc. With a reduced debt load, those who are struggling financially are able to take care of themselves again.
Taking care of themselves can include things like timely payments on the debts they do keep and a reduced debt-to-income ratio. These can even have a long-term beneficial impact on credit scores
. While bankruptcy is considered a negative factor on a credit report, most of our clients are projected to have a better credit score one year after their bankruptcy discharge than they did before they filed.
Taken together, these benefits strengthen debtors, whether those debtors are individuals, married couples, families, or even businesses. After all, that's part of the two-fold purpose of bankruptcy: to give debtors a fresh start while making sure creditors get their fair share. If you would like to learn more about what a fresh start could look like for you, please contact us