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Avoiding consumer bankruptcy could be a bad move

When considering options for debt relief, many in Maryland consider bankruptcy to be their least advisable choice. This is largely based in a range of beliefs about consumer bankruptcy that are not based in actual fact. A recent report took a look at the effects of the most recent bankruptcy reform of 2005, and the results suggest that taking steps to avoid filing for bankruptcy might be more financially harmful than moving forward with the process.

For example, consider a young person who at age 25 is facing serious levels of debt. He or she could contribute $300 per month into a debt repayment plan, and would eventually repay that debt. However, had that same individual put $300 per month into retirement savings, that investment would be worth around $1.2 million by the time he or she reached the age of 70.

From another perspective, consider the effect that insolvency and bankruptcy have on credit scores. While it cannot be denied that bankruptcy will cause an initial decline in scoring, an individual who completes a bankruptcy action can immediately begin credit repair efforts. Credit scores are found to rise sharply after a bankruptcy. On the other hand, a consumer who is insolvent and struggling to pay down debts will have a far longer path back to solid credit scores.

The decision whether to file for consumer bankruptcy is one that depends on each individual's circumstances and goals. For some, debt repayment is the best course of action, even though it will take longer to yield results. For many in Maryland, however, personal bankruptcy offers an expedited path to debt relief and the chance to rebuild financial security.

Source: Fox Business, "How Avoiding Bankruptcy Can Backfire", Steve Rhode, March 2, 2015

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