Why bankruptcy may be advisable

While Florida residents have probably heard that filing for bankruptcy is the worst possible thing they can do for their credit scores, that is not always true. For many people, their credit scores increase substantially after they receive their bankruptcy discharges.

In most cases, by the time people file for bankruptcy, their credit is already badly damaged. Instead of falling further, studies show that the average credit scores for people rise after they file. One study completed by the Federal Reserve Bank of Philadelphia found that the credit scores of people who filed for bankruptcy fell dramatically in the 18 months leading up to when they filed. The researchers found that on average, people who filed for Chapter 7 bankruptcy had credit scores of 538.2. When their discharges were received, their average scores rose to 620.3.

Chapter 13 bankruptcy petitions involve repayment plans lasting between three and five years. Many filers have difficulty with successfully completing Chapter 13 bankruptcy. According to the American Bankruptcy Institute, half of all of the Chapter 13 cases that were filed between 2007 and 2013 were dismissed, and many others were converted to Chapter 7 bankruptcy cases. For those who did complete their repayment plans successfully, their average scores rose from 535.2 at the time of filing to 610.8 at the time of discharge.

In many cases, filing for bankruptcy may be the best alternative debtors have, especially when they are facing such things as harassing phone calls, civil lawsuits, foreclosure actions and wage garnishments. Bankruptcy has the potential to give debtors the fresh financial starts they need. When unsecured debts are discharged, the debtor will no longer be obligated to pay what is owed. Creditors are also prevented from engaging in further collection activities post-discharge. To learn more about the most appropriate type of bankruptcy for them, debtors may want to talk to a lawyer who has experience with these matters.