The time period leading up to when you file bankruptcy will likely be one of the most stressful in your life. You'll have unpaid bills piling up, past due statements rolling in and your phone ringing off the hook from creditors and their debt collectors calling demanding their money. This can affect your work and can lead you to make terrible decisions that will make your money matters worse. But what you may not realize is that filing bankruptcy can actually enable you to make better money choices.
Decision Making Under Pressure Leads to Mistakes
Research from Vanderbilt University shows that our brains function differently when making snap decisions versus well thought out decisions. Mulling over decisions without time stress usually leads to wiser decision making. The study indicated that only when it's a do or die situation should high-pressure decision making be indulged. Professor Jeffrey Schall, the lead researcher, said, “If the decision is whether or not to shut down a nuclear reactor in the presence of a potential meltdown, I'd prefer haste.”
But when you get a call from a debt collector who is using aggressive practices (perhaps even illegal ones) like making threats if you don't pony up some cash on the spot, it can feel like a meltdown. When this happens, you may give the squeaky wheel the grease in the form of money you can't afford to give them that would be better devoted to paying rent or buying food. When you get behind on bills, you may be put in the situation time and again and dole out your sparse funds in ways you should not.
Tight Money Situations Are Self-Perpetuating
Research out of Harvard and Yale by a behavioral economist and a cognitive psychologist found that people living paycheck to paycheck are in a vicious behavioral cycle that can keep them in a cash-strapped predicament. When we have to think about every single dollar so that even small decisions like buying a loaf of bread or which minimum credit card payment should be made when there's not enough money to pay them all actually diminishes our mental functions.
When today's financial demands are so all consuming, planning for a better financial future becomes cognitively impossible. The test showed that your mental bandwidth can drop by the equivalent of 13 IQ points when we overtax our brains when we have to make too many stressful decisions constantly. Having enough money to throw bread and milk into the cart without worrying that you won't then have enough money to put gas in the car enables you to make better decisions.
What the Research Has Us Thinking About Bankruptcy
As soon as you file bankruptcy, all debt collection efforts must stop. You get an automatic stay on all debts, even those that will survive the bankruptcy. This creates automatic breathing room and some peace of mind. In this moment of calm, you can more carefully consider how your money is best spent. And it's not just the automatic stay that helps, but the alleviation of nearly all your unsecured debts (when you opt for a Chapter 7 bankruptcy) that will give you more space to think.
With a huge chunk of your debt gone, you can better focus on how to allocate your money between your remaining debts. With the time crunch gone, you'll think more clearly and be able to make better decisions about your finances. This will allow you to get on track for a better long-term financial future. So, in a way, we can conclude that filing bankruptcy can make you functionally smarter. And that's a good thing.
To make the smart money decision to get yourself out of debt and off to a brighter financial future, contact the law offices of John T Orcutt for a free consultation about filing a North Carolina bankruptcy today.