Bankruptcy could be the first step toward financial stability

When unemployment or medical problems strike Michigan residents, incomes could fall and bills may go unpaid. However, bankruptcy could represent a viable approach for eliminating debts and reclaiming financial health.

Legal and financial advisers view bankruptcy as a tool to open a new path forward. People can take proactive steps to get debt under control and rebuild their credit rating during and after the bankruptcy process. Depending on whether the bankruptcy is filed under Chapter 7 or Chapter 13, a person could expect the discharge of most debts or a payment plan that takes the pressure off of the monthly budget. During this time, debtors need to monitor their credit reports from all three major credit bureaus. When consumers see errors on their reports, they should dispute them. Roughly 30 to 50 percent of negative items on a credit report could be removed just by disputing them.

To build a new credit history, a recovering debtor could take out a small loan and repay it within six months. Timely repayment will produce a positive item on the credit reports. Setting and achieving small financial goals like this will help a former debtor establish better spending habits and attain financial stability.

Seeking advice when financial problems hit could prevent a person from falling further behind on bills. An attorney familiar with bankruptcy could examine a client's debts and assets and propose a strategy for rebuilding finances. The client could learn which assets, such as a primary residence, might be exempt during a bankruptcy. Legal representation could aid a person with the filing of financial disclosures with the court. An attorney might also confront creditors harassing the client and inform those entities of their obligation to communicate with the court.