How can you tell when and if it’s time to declare bankruptcy?
Some signs that that may be something you need to think about are:
- You are only able to make the minimum payments on your credit cards
- Bill collectors are constantly calling you.
- You are using credit cards to pay for necessities, like groceries and gas.
- You have thought about debt consolidation.
- You are unsure how much you actually owe to creditors.
If any of these apply to you, you may need to look into your financial situation a little more. Bankruptcy is when you owe more than you can afford to pay. To determine where you are financially, inventory all of your liquid assets. You’ll want to include retirement funds, stocks, bonds, real estate, vehicles, college savings accounts, and other non-bank account funds. It doesn’t have to be exact, down to the penny, a rough estimate is fine.
After you know how much you have, get together and add up all your bills and credit statements. If the value of your assets is less than the amount of debt you owe, declaring bankruptcy may be one way out of a tough financial situation. However, bankruptcy shouldn’t be approached casually. It’s definitely not a simple, easy cure-all for out-of-control debt.
If you do decide that filing bankruptcy is the way you should go, you can go about it in one of two main ways. The more common route is to voluntarily file for bankruptcy. The second way is for creditors to ask the court to order a person bankrupt. There are several ways to file bankruptcy, each with pros and cons. You may want to consult a lawyer before proceeding so you can figure out the best fit for your circumstances.
Some common reasons for filing for bankruptcy are unemployment, a lot of medical expenses, seriously overextended credit, and marital problems. A Chapter 7 bankruptcy liquidates your assets to pay off as much of your debt as possible. The money from your assets is given to creditors like banks and credit card companies. The record of your bankruptcy will stay on your credit report for ten years.
But Chapter 7 bankruptcies aren’t right for everyone. Almost all assets are taken and sold to repay creditors. If you own a company, a family home, or any other personal assets that you want to keep, Chapter 7 may not be the best option.
For people who have property they want to keep, filing a Chapter 13 bankruptcy may be the better choice. That allows you to pay off your debts over a period of three to five years. If you have consistent, predictable annual income, Chapter 13 offers a grace period. Any debts remaining at the end of the grace period are discharged.
Once the bankruptcy is approved by the court, your creditors have to stop contacting you. It can be hard to admit you need help getting out of debt. But that’s why our country has bankruptcy laws to protect not only the creditors, but you as well. If you have a high debt-load, it may be time to face financial facts. You could be doing yourself a disservice by not filing for bankruptcy. With a good lawyer and the right information, filing bankruptcy could give you the financial footing you need to get a fresh start.