Because of the negative perception many people have toward bankruptcy, you might shy away from bankruptcy as an option. But if you feel burdened by continually mounting debt, bankruptcy may be the best choice for you. Filing for bankruptcy is not an admission of failure and it can help wipe out your debts and put you back on the road to fiscal solvency.
Still, whether you should file for bankruptcy is a choice only you can make. Nerdwallet describes some of the more popular reasons people file for bankruptcy.
Stopping collection efforts
If you fall behind on your payments, your creditors may start hounding you for back due payments. They may even go to court to secure a judgment against you or try to garnish your wages. These actions can emotionally stress you out. However, if you file for bankruptcy, you can trigger an automatic stay that will cease nearly every collection effort against you.
Wiping out your debts
Bankruptcy does not get rid of all your debt obligations, but it can wipe out certain kinds of debt. If you file for Chapter 7 bankruptcy, you may be able to get rid of credit card debt, unpaid utility bills, some old taxes, business debt, and medical bills. Chapter 7 can also eliminate many civil judgments against you except those dealing with fraud. Even if you cannot eliminate of all your debt, discharging some of it may free you up to take care of your remaining debt obligations.
Rebuilding your credit
Going through bankruptcy can help restore your credit. While it is true your credit score will suffer from your bankruptcy, chances are your credit score was already low because of your outstanding debts. Discharging your debt may give your score a bit of a boost. Once you are free of debt, you can start rebuilding your credit.
You may feel you cannot get a loan or a credit card after your bankruptcy, but the fact is that there are lenders and financiers willing to take a chance on bankruptcy filers. You may just have to settle for low credit limits until you can rebuild your credit.