The focus of the Easter Story (besides eggs and bunnies) is, at its core, a story of death and resurrection; the story of the Recession is the same. While the banks and credit card companies would like to scare all debtors into thinking that bankruptcy is credit death, it is actually the Death of Debt. You should understand the difference. The truth of the matter is that the bankruptcy was not designed to result in credit death, but to secure the Resurrection of credit worthiness.
Revolving debt was designed to do just that: revolve around an individual, like the earth revolves around the sun, forever in perpetuity. As the earth never stops revolving around the sun, revolving debt was designed to remain with a person making minimum payments for a very long time, if not forever. If a person can no longer make minimum payments, the “help” the creditors give is in the form of raising interest rates, raising monthly payments, and lawsuits. These tactics make it even less possible for an individual to rehabilitate their credit.
A Different Perspective
There is a historically negative stigma accompanying the process of bankruptcy. However, you must understand that banks are in the business of lending. The only way they survive is by lending money. If a bank does not find people to lend to, it will die. Thus, lenders both “live to lend” and “lend to live.”
Lenders realize that a person who has no debt is not a significant lending risk. As a result, a responsible post-bankruptcy debtor (one who shows they will make payments on time) is actually more desirable to many creditors than those who are saddled with debts, have late payments all over their credit reports, and are one emergency (such as a recession) away from having to file bankruptcy.
The majority of individuals who file bankruptcy have higher credit scores one year later than their counterparts who continue to struggle with their revolving debt through defaults and delinquencies. This is a statistical fact.
You need simply ask yourself if bankruptcy was the end of the world, then why did General Motors, Chrysler, Delta Airlines, Washington Mutual, Donald Trump’s Taj Mahal, WorldCom, and Enron, (all companies with seasoned experienced financial experts at the helm) file for bankruptcy relief when they did?