Debt, income and bankruptcy are financial factors that dictate the consumer economy. Debt-to-income ratio is the starting point for evaluating consumer credit. The higher your income, the better your credit. The more debt you have, the worse your credit. Or at least that is the big picture.
Consumer credit controls the cost of financing. The better the credit, the better the cost. Debt and income are obvious factors in this formula. But how does bankruptcy fit in? Filing bankruptcy allows you to discharge your debts. This means the debts are eliminated and never have to be repaid.
Though bankruptcy is an initial negative on your credit after you file, discharging your debts at the conclusion of your bankruptcy is a big benefit. How big that benefit is to you depends on the amount of debt your discharged, or eliminated. By weighing the cost of the bankruptcy impact versus the discharged debt is the essential evaluation of whether to file for bankruptcy. If you have big debt and little income, bankruptcy may be a good option for you. If, though, your debt is not too great and your income enough to handle that debt, maybe bankruptcy is not your best bet. Every situation is different.
Even if your debt-to-income ratio seems ok, bankruptcy may still be a benefit if you have a disproportionate amount of certain debt. Typically credit card debt imbalance in your personal finances will warrant the need to file for bankruptcy. This type of debt does not enhance your income. As such, it is viewed as a drag on your credit.
By discharging your debt through a bankruptcy filing, you can clear your debt-to-income ratio. By doing so, your ratio is cleared for as long as you do not accumulate any more debt. Your bankruptcy impact is only temporary. Though a bankruptcy filing lasts on your record for years longer, improving your credit generally takes only a couple of years.
With the economy still sputtering to return to full strength, debt, income and bankruptcy are concerns for consumers. This story reflects the financial predicaments of many Americans. Even if you can do noting to increase your income, you can do something about your debt.
Learn more about your financial options by scheduling a free consultation today!