Bankruptcy is rarely a case of people overspending, says personal bankruptcy attorney Tara Blakely. Most people are forced into it by circumstances beyond their control, like the sudden loss of a job, mounting bills for medical treatment, or divorce. So what happens? People live on their savings while they look for the next job, and when their savings is spent, they stretch their credit cards. Or they use their cards to keep the collection agencies at bay. Either way, debt rises until it seems insurmountable. But it’s not the end of the world. Though filing for bankruptcy may feel like a personal failing, Blakely says, it’s often the smartest way to protect your assets. “People have shed many a tear in my office,” she says. “They are embarrassed, or they feel like they’ve done something wrong or something immoral. But having something bad happen to you is not wrong,” she says. “Filing for bankruptcy wouldn’t be legal if it were wrong. Doing it doesn’t make you a bad person.” Though Blakely handles about 200 cases a year, filings are down significantly from the peak of the national financial crisis in 2008-2009. Just the same, if you find yourself headed into financial straits, she says, talk to a lawyer or credit counselor immediately, before you deplete your savings, cash out your IRA or default on your mortgage. A Chapter 7 filing protects many of your assets and could put you on track to a credit rating in the 700s as quickly as a few months. “Just by filing, your credit score can go up 50 points because you’re no longer a big risk,” she says. Her other piece of advice: “Try to keep your debt to a minimum while you’re working by not buying things you don’t need.”
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