Credit has had a long and evolving history throughout Western finance. The ability to make purchases and transactions without the means of actual payment revolutionized the conduct of financiers, bankers and traders throughout the Middle Ages and beyond. Today, credit is the lifeblood of modern Western economics. The ability to borrow money on credit is one of the highlights of Western financial achievement.
Unfortunately, that achievement has been used very irresponsibly. Today, revolving consumer credit card debts total in the trillions of dollars, $14 trillion according to the Federal Reserve. Dealing with this debt has led to record bankruptcies and defaults as consumers find that their debts outweigh their ability to pay for them. Bankruptcy is the option of last resort for debt-saddled consumers.
Bankruptcy can relieve debtors of their burden, but the consequences are unfortunately long-term. Bankruptcy effectively eliminates the ability to access credit, which can mean financial death for people in today’s economy. While cash still retains purchasing power, credit is the better choice for many reasons. For this reason alone, declaring personal bankruptcy is best avoided until all other options have been truly exhausted.
While bankruptcy may be a last resort, sometimes it is the first resort of debtors because of the sheer magnitude of their situation. Filing for bankruptcy is a treacherous process without the help of an attorney. Without an attorney, going to bankruptcy court is like playing a hockey game without any protective pads. It is dangerous and could potentially lose the debtor their case if the creditor’s attorney are good enough, and they usually are.
No matter how debtors got themselves into debt, the methods for getting out of debt remain the same: pay it off or file for bankruptcy. Whether they bought securities backed by investment property mortgages or subprime mortgage loans, debtors have only two options to get out of debt reasonably.
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