Samuel Antill, professor at Harvard Business School: “People don’t understand how good of a deal bankruptcy is”

Bankruptcy rates have been on the increase in the United States in recent years. However, despite non-business bankruptcy filings rising to nearly 550,000 by the end of last year, they are still below pre-pandemic levels.

Finding yourself facing financial distress and being unable to meet your obligations can not only be scary, but extremely stressful. Besides trying to find the money necessary to cover your daily expenses you have to deal with debt collectors calling and demanding that you repay that which you already owe.

Through bankruptcy though, the legal system provides a way that you can get a fresh start and rebuild your financial standing. This process, however, carries a good deal of stigma and many are not willing to take this form of relief.

The benefits of bankruptcy may be better than the stigma

In addition to the embarrassment that many feel filing for bankruptcy will befall them, another is the fear that it will irrevocably affect one’s credit record. It’s true that a bankruptcy filing will remain on your record for up to ten years, and most likely means that you will be charged higher interest rates on any new credit until you can improve your financial standing.

However, experts in the field point out that if you have reached the point where you should be considering filing for Chapter 7 bankruptcy, your credit score has probably already taken a pretty bad hit.

The American Bar Association points out that bankruptcy may actually improve your credit score. “Because Chapter 7 provides for a discharge of debts no more than once every eight years, lenders know that a credit applicant who has just emerged from Chapter 7 cannot soon repeat the process,” the ABA explains.

Assistant professor at the Harvard Business School Samuel Antill told NPR that “people don’t understand how good of a deal bankruptcy is.” According to his research, within a year of filing most people’s credit score have recovered and tend to improve after that point.

In addition to helping bring your debt under control either by having some or all eliminated and/or stretching out repayments under court supervised protection, filing for bankruptcy stops your creditors from pursuing collection efforts.

“Possibly the biggest benefit of petitioning the court for bankruptcy is that all your creditors then have to stop harassing you,” Bankruptcy economist with American University Mary Eschelbach Hansen shared with NPR.

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