How Bankruptcy Leads to Savings

People are often afraid of the negative consequences of bankruptcy. But the positive side is being debt free, with the ability to rebuild your savings.

A significant number of U.S. bankruptcies are related to medical expenses, and most are due to unforeseen circumstances. A tragedy in the family, loss of work, and unforeseen home repairs that weren’t covered by a family’s insurance provider, are a few examples.

When an honest debtor is looking at their bills and seeing a negative difference between what they have and what they owe, they may feel embarrassed about filing bankruptcy. It is true, credit will have to be rebuilt after a discharge, but the cost of blemished credit is often far less than servicing debt.

Median credit card debt is $3,000 in the U.S. (We will cover average credit card debt in a moment.) If that debt is carried on a card that already has a high interest rate of 18%, that credit card will have a minimum monthly payment of $75/month. If a card holder pays $75/month consistently they will have that balance paid off in 62 months. The bank will take in $1,615.87 making the effective interest rate 53% of the loan’s value.

However, many people are not able to continue with a fixed payment and adjust their paid amount with the minimum payment. The minimum payment of course gets lower as the balance is paid down.

Under the same scenario where a card has a $3,000.00 balance and 18% interest rate, a borrower paying only the variable minimum payment will pay off that balance in 18.5 years. They will make 222 payments and pay $3,923.08 in interest. That is an effective interest rate of 130% of the loan’s value.

When things get tight, that is when families need access to as much of their income as possible. Filing bankruptcy could eliminate all unsecured debt and free up monthly income. Once the bankruptcy is complete and the family is back on their feet, they can begin servicing their own savings account rather than credit card debt.

While credit card debt is on the raise, personal savings is not.

The average family has $3,800.00 in savings whereas the average U.S. family has $15,956.00 in credit card debt. Eliminating credit card balances now can help shift the balance back to a family’s safety net and away from servicing debt.

O. Reginald (“Reggie”) Osenton is the Owner and President of Osenton Law Offices, P.A. If you need a Brandon bankruptcy lawyer, Tampa bankruptcy lawyer, or Tampa bankruptcy attorney, call 813.654.5777 or visit

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