This year has been challenging for many people’s finances. The Federal Reserve Bank estimates that 17 million American households – roughly 14% – are deeply in debt, but fewer than 1% file for bankruptcy each year.
Economists say thousands more could benefit from bankruptcy but refuse to take action. They argue that’s because debt collectors aren’t aggressive, or that people delay taking action, thinking they can get more benefits if they wait.
However, a much simpler explanation exists. People are either afraid to take action, they don’t have access to factual information, or they have misplaced optimism that things will just get better.
Bankruptcy filings decline in 2020
This year is unique in many ways, including bankruptcy filings. During the second quarter, filings were down 60% from the average over the past five years. Some argue that shuttered courthouses due to the pandemic make it harder for creditors to pursue garnishing wages and foreclosures.
However, other likely reasons exist, such as relief actions that postponed payments for rent, mortgages and student loans, and other hardship options for credit card and loan accounts. A $600 weekly unemployment increase also likely kept many people afloat, but that has expired.
Consider the benefits of bankruptcy protection
While these short-term protections have helped, other people pay off their debt by draining retirement accounts or using other assets that would be protected under Chapter 7 or Chapter 13 bankruptcy. That’s why it’s crucial to listen to the facts, such as:
- Protecting assets: You don’t lose everything by filing for bankruptcy. Debts are erased while equity in homes, cars and other assets are protected by Chapter 7. Under Chapter 13, you can keep virtually everything and erase debt for pennies on the dollar, making payments over a three-to-five-year period.
- Credit scores: While a bankruptcy filing can remain on a credit report for up to 10 years, credit scores usually rebound within months. Long-term financial harm can be greater by doing nothing.
- Overcoming anxiety: Massive financial debt often takes an intense emotional toll as well. Many people force themselves into a misplaced sense of optimism that things will improve. Taking steps now to address debt through bankruptcy can get someone back on track much sooner.
Don’t let fear dictate your actions
Many people fall into overwhelming debt through no fault of their own, whether it’s due to medical bills, losing a job or suffering other emergencies. An experienced bankruptcy attorney can help you assess the situation and suggest opportunities to help you find a reasonable path back to financial stability and prosperity.