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The consequences of personal bankruptcy may be exaggerated

Massachusetts residents who are struggling with overwhelming debt often put off filing for bankruptcy because they worry that a Chapter 7 or Chapter 13 petition will ruin their credit and make future borrowing difficult or impossible. However, a report recently released by the online financial exchange Lending Tree suggests that these fears may be exaggerated. Researchers discovered that 43 percent of Americans who file a bankruptcy have credit scores of 640 or higher just a year later, and this figure rises to 65 percent after three years.

The Lending Tree report also reveals that a previous bankruptcy may not have much of an influence on auto loan rates. While individuals who take out a $15,000 car loan within a year of filing for bankruptcy pay about $2,171 more in finance charges, these additional costs drop by almost two-thirds to $799 within two years.

However, experts say that recovering from a bankruptcy quickly involves planning. Financial planners advise those who have filed a personal bankruptcy to budget carefully and borrow sparingly to avoid falling into the debt trap once again. They also urge debtors to look at the positive aspects of pursuing debt relief and the fresh start that taking action can provide.

Attorneys with experience in this area may be familiar with several myths and misunderstandings surrounding personal bankruptcy. A lawyer could address such issues by explaining to a client how the bankruptcy laws were not written to punish poor decisions but to provide second chances. Legal counsel could also point out that filing a Chapter 7 or Chapter 13 bankruptcy petition will prompt an automatic stay that puts an immediate end to all collection efforts and protects paychecks from garnishments.

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