Recently on our bankruptcy forum a user asked, “I have been in a financial crisis for several years and it seems no matter what I do I can’t seem to get out of debt. How do I know when it might be time to file bankruptcy?”
Reasons you might want to file bankruptcy
Bankruptcy is an important financial decision, and it’s not the right choice for everyone. Before deciding whether to file bankruptcy it’s good to understand what bankruptcy will and won’t do for you and when it might be the right decision for you.
- What types of debts do you have?
The first thing to consider when deciding whether or not to file bankruptcy is to evaluate what types of debts you owe. Filing Chapter 7 will discharge credit card bills, medical debts and other types of unsecured debts. Chapter 13 may also allow you to stop certain wage garnishments, bank account levies, or even a home repossession.
If your debts are for taxes, student loans, child support, spousal support or for secured assets, however, bankruptcy is probably not the right choice for you.
- What is your ability to repay your debts?
Before filing for personal bankruptcy it’s important to take a very close look at your personal financial situation. How much money do you make? Have you created a budget? Have you evaluated other ways to earn to more money?
Debtors should repay their debts if they are able. In fact, if you make too much money or the court decides you have enough discretionary income to repay your debts you will be forced to file Chapter 13 bankruptcy and your unsecured debts will not be immediately discharged.
- Have creditors started harassing you for repayment of debt?
Creditors can be relentless. You owe them money and they are going to do everything they can to get it repaid: calling you non-stop, writing threatening letters, or taking you to court to get a garnishment order from a judge.
If you are constantly threatened by creditors, you have debts which may be discharged through bankruptcy, and you have no means to repay your debts, it might be time to talk to a bankruptcy lawyer about whether or not to file bankruptcy.
- You have started borrowing money from friends and family.
No one likes to borrow money but sometimes a financial crisis can become so severe it is your only option. Another sign that you might be in a financial crisis is if you are begging for money each month to pay for your monthly necessities.
- Do you have wage garnishments, bank account levies or property repossession?
Finally, one of the most telling signs that you are in a severe financial crisis and it might be time to file for bankruptcy is if your paycheck is being garnished, creditors have received a judgment for a bank account levy, or your house is about to be repossessed.
There is not one factor which clearly identifies when it is time to file bankruptcy. There are a host of reasons, however, that should be considered before filing.
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