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Is bankruptcy better than delinquent debts on a credit report?
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Generally speaking, bankruptcy can be better than delinquent debts on a credit report. As a bankruptcy attorney in Asheville, North Carolina, we see clients everyday who are wondering whether bankruptcy will really make a difference. Some of these folks have already stopped paying on their credit cards, personal loans, and medical bills.
These debts fall into the general category of unsecured debts. Unsecured debts mean that there is not an item or tangible thing tied to the money borrowed or loaned. For example, when you buy a car, you sign a loan for the debt on the car. The car is the collateral securing the money loaned to you. This security means that the lender can take the car should you stop making payments on the collateral. Unsecured debts, in contrast, have no collateral. If you stop paying on a credit card, you just stop paying on a credit card. The act of stopping monthly payments does not, in itself, cause any collateral or tangible item to be taken from you. The same goes for a medical bill. The medical service has already been provided. Stopping paying on a medical bill just means you are not paying that medical bill anymore each month.
What can and usually does happen when you stop paying on unsecured debts is that the creditors behind those debts start contacting you about missed payments. Once you miss a payment, you get a letter stating that you missed a payment. After missing 3 or more payments, you get a letter saying the debt is delinquent. Then, the creditors start calling you everywhere. Your house, your place of work, your old phone numbers, even your parents, creditors will call almost anywhere to find you to get you to make a payment on the debt.
Delinquent debts eventually are charged off by the creditors or listed as bad debt on your credit report. Credit reporting and credit scores are a constantly fluctuating system so this article is not meant to determine how your scores are calculated. But, if you have a lot of delinquent, unpaid debt on your credit report, it is likely that filing bankruptcy can be a good step to handle that delinquent debt.
Although bankruptcy filings can stay on your credit report from 7-10 years, it does show that you addressed the debts instead of letting them continue to accumulate unpaid. Bankruptcy filings allow you to avoid any judgment liens that may have been created as a result of creditors suing you for unpaid delinquent debts. Bankruptcy gives you the peace of mind that you have discharged your debts and really have a fresh financial start to move forward.
Filing bankruptcy on delinquent debts also lets all the credit reporting agencies know that all those debts, up to the date of filing your case, are discharged. Now, you have a clean slate. When delinquent debts linger on your credit report, you may have difficulty acquiring new debt or buying a house or car. Although it is true that filing bankruptcy on your delinquent debts can also make it a little harder to acquire new debt, at least when you do start using credit again, you can pay it off in full every month and have a clean fresh beginning on your credit report.
Filing bankruptcy on delinquent debts also gets those debts out of sucking your monthly earnings away from you each month. Should you file bankruptcy, you only pay on any newly acquired debt without having all those old debts hanging over your head. Besides bankruptcy, you could also speak with a nonprofit organization that provides free advice on potentially settling your debts with creditors or consolidating your debts to help lower your monthly payments. These are perfectly viable options to repair your credit score if you are able to meet the requirements. Most bankruptcy lawyers offer a free initial consultation which is a great way to learn more about your best options.