Although bankruptcy is authorized by federal law, certain myths associated with this legal remedy continue to persist. The myths serve to perpetuate a negative stigma about bankruptcy in Pennsylvania and throughout the country; however, they are not based in reality. Unfortunately, the stigma will remain until consumers are better informed about the powerful features of bankruptcy that allow them to obtain fresh starts in their economic lives.
Bankruptcy is widely used in the business sector of society. The reorganization of corporations, allowing them to reshuffle debt loads and institute new management practices, has allowed many businesses to stay afloat in hard times and to flourish afterward. In fact, Chapter 13 is a personal reorganization of an individual’s finances that can achieve a similar kind of renewal, allowing for a new financial start.
Two of the powerful myths about personal bankruptcy are that an individual will never get credit again and that he or she will have to wait 10 or 12 years for the reporting of a bankruptcy to cease. Fortunately, the Federal Reserve Bank of New York recently released a report regarding the bankruptcy reforms of 2005. The report verifies the well-known fact that it is harder for consumers to file under the changes enacted.
However, the report also serves to largely debunk the powerful myth that persists in Pennsylvania and elsewhere that says that a consumer cannot get credit again after a bankruptcy. The report indicates that people who filed bankruptcy were offered more new lines of credit than those who did not file and remained mired in insolvency. Surprisingly, the study also concludes that an individual who completes a bankruptcy often sees a spike in his or her credit score. Furthermore, those who file for a personal bankruptcy are more likely to preserve their retirement funds than who suffer insolvency but decline to file bankruptcy. That is because one’s retirement funding is generally protected during bankruptcy proceedings by federal law.
Source: The Huffington Post, “How Avoiding Bankruptcy Can Backfire“, Steve Rhode, Mar. 4, 2015