1. Bankruptcy should be a last resort.
While this generation seems to borrow and spend at a furious pace with easy loans and multiple credit cards, with the crash of the real estate market and increased job losses you might find that the costs of living, including food, gasoline and other necessities, has out-paced your income.
Others in retirement have also seen their savings ravaged by stock market losses and inflation. It is clear that many individuals have real economic problems and they need serious solutions. But is filing bankruptcy the best option? It may be for some debtors, but for others they simply need to create a budget, cut up the credit cards and start paying their debts.
2. What types of debts do you have?
Bankruptcy is not a cure-all and it will not discharge all of your debts. Before considering whether it is the right solution for you, you must know what debts can be discharged or restructured and which must be paid.
Debts which are not eligible for discharge are listed under the Bankruptcy Code 11 U.S.C. §523 and include fraudulent Actions, student loans (unless payment will impose an “undue hardship” to such an extent that the debtor will not be able to maintain even a minimal living standard), child and spousal support, current tax obligations, and debts from willful and malicious injuries to persons or property or debts for personal injuries caused from the debtor’s operation of a motor vehicle while under the influence of alcohol or drugs.
If you have debts which are not dischargeable filing bankruptcy is not the right solution for you.
3. What are the long-term consequences of filing bankruptcy?
Many people think filing bankruptcy is a simple solution with no long-term consequences. Unfortunately, if you file bankruptcy your credit score will be lowered, it will remain on your credit report for 7 to 10 years and it may make it more difficult to buy a car or a house.
4. Have you talked to your creditors about credit cards or loans?
Your creditors do not want to repossess your home or cars. Whether or not they are willing to renegotiate loan payments must be discussed with them, but it cannot hurt. If you think you are going to miss a mortgage or car payment contact your creditors as soon as possible and discuss your options.
5. Do you have a plan to modify your spending after bankruptcy?
Many debtors have faced a serious financial crisis such as divorce, severe health conditions or job loss which has made filing bankruptcy their only option. Other debtors simply do not have a workable budget and find themselves abusing their credit cards, failing to delay gratification and hoping they can file bankruptcy over and over again instead of modifying their behavior. If this describes you, it is time to take a hard look at what actions you need to change.
Create a detailed list of how you spend your money. Determine which expenses are needs and which are wants. Many debtors spend hundreds or thousands of dollars each month on wants instead of needs. Many experts suggest listing your debts highest to lowest and paying the lowest amounts first. After the first loan or credit cards is paid, use the extra funds to repay the next lowest loan or debt. This process should be continued until all of the loans or debts are paid off. This will be difficult to do at first but will give you a great sense of accomplishment when you are done.
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