When Should You File for Bankruptcy?
When you are already drowning in medical bills and other types of debts despite exhausting all your efforts, you may have to consider filing for a bankruptcy instead. But sometimes just the thought of filing for bankruptcy can be pretty scary due to the social stigma attached to bankruptcy.
As a rule of thumb, it is always a better to pay off your debts as opposed to filing for bankruptcy. Because of the considerable impact bankruptcy can have on your personal and financial life, it should be viewed as a last resort – and not as the ultimate solution.
Before filing for bankruptcy, consider asking yourself the following questions first:
Have I tried negotiating with my creditors?
Reach out to your creditors and work on settling your debt before starting the bankruptcy process.
Have I already sought help from a credit counseling agency?
A reputable credit counseling agency can give you financial education, assess your financial situation, and help you find the best debt management plan to pay back your debt.
Is your paycheck being garnished?
If your paycheck isn’t being garnished, you could avoid it entirely (and avoid bankruptcy too) by setting up a debt management plan first.
Are your debt collectors already suing you?
Remember, no matter how your creditors threaten you, it is not a crime to owe money; if that were the case, we would all be in jail.
Do you own some assets?
You could lose these assets during a bankruptcy. Are they worth losing, or could you figure out a way to repay your debt instead?
Do you have other ways to earn money to pay off your debt?
Extra income or living a more frugal lifestyle can go a long way in helping you repay your debt without going through bankruptcy.
Should I File for Bankruptcy? The Pros
Filing for bankruptcy can be petrifying, but when used appropriately and at the right time, it can provide you peace of mind, save you money and help you get a fresh start financially.
Here are some pros to consider when you file for bankruptcy:
Get rid of embarrassing calls from debt collectors.
Declaring bankruptcy means you can get rid of harassing phone calls from your creditors and give you back your peace of mind.
Chance to rebuild your credit.
Filing for bankruptcy can help you get a fresh start to rebuild your credit. It can also give you the chance to regain your financial footing and can be a valuable learning experience that helps you become wiser about your future financial decisions.
Stop foreclosures and asset repossessions.
If you’re in the middle of a foreclosure or having your assets seized, a bankruptcy will put that on hold. Should I File for Bankruptcy? The Cons While declaring bankruptcy can help ‘wipe out’ your obligation to pay your debt, it also comes with serious implications that can affect you for many years to come. That being the case, here are five downsides to filing for bankruptcy:
- It is devastating to your credit history. A report of a bankruptcy can remain on your record for seven to 10 years.
- Filing for bankruptcy can be costly.
- The processes involved in filing for bankruptcy can be very time-consuming.
- Your bankruptcy filing will be public record. In addition, should you apply for another loan years later, denying a previous bankruptcy filing can put you on the hook for fraud violations and you can be prosecuted.
- Bankruptcies can be emotionally taxing. People who have filed for bankruptcy often feel like they are a failure and struggle with depression and loss of self-esteem.
Are you up all night thinking about how you are going to pay off your debt? Are you behind on some bills, and the sound of your phone ringing is enough to give you anxiety attacks? Maybe it’s time for you to file bankruptcy. Or is it?