When to File Bankruptcy

Written by jessica Alba

Your finances have never been in such dire straits. You are afraid to answer the phone, because someone is always calling to collect a debt. You cannot seem to find out way out from under the mountain of bills. You are stressed out to the max. But, how do you know when to file bankruptcy?

After all, bankruptcy seems to be the last resort. It will essentially ruin your credit for 7-10 years. Thus, even if your financial situation improves over the next few years, it can still be almost impossible to make any major purchases. What if you need a car, have an opportunity to purchase a house, or ever need a business loan? You have to decide whether the financial consequences of bankruptcy are less than simply defaulting on loans and letting the bills go.

Afraid to Answer the Phone

Do you wait for the answering machine to answer a phone call, before you pick up the receiver? Are creditors always asking for money and threatening to take legal action? Is your mailbox constantly full of reminder notices that your account will be sent to collections, if you do not pay it in full by a certain date?If you can make payment arrangements to satisfy the people to whom you owe money that would be great. But, if you simply cannot make the payments, no matter what you do, then it may be time to seek the advice of a bankruptcy lawyer. If creditors take legal action, your financial troubles will only get worse. Plus, you will have to pay legal fees and court costs, if you lose the case.

Minimum Payments

At one time or another, everyone has had to play the game of shuffle the bills, unless they are independently wealthy. You pay one bill this paycheck and you set the other bill aside until you get paid again. Now is not the time to claim bankruptcy.

But, if you do not ever have the money to make the minimum payments, and you cannot see your finances improving in the near future, you may have to consider bankruptcy. For example, your hours may have been cut at work; worse yet, you may have lost your job. It is all you can do to keep a roof overhead and feed the family, and even that responsibility is a day to day struggle.

Maybe you have suffered a catastrophic illness or injury in the family, and the bills are racking up to the point that you will be two hundred and ten before you can see the financial light of day. In order to provide the basic needs for your family and get a fresh start, you are going to have to claim bankruptcy. After all, there is absolutely no way you will even be able to make the minimum payments on the stack of bills waiting to be opened.

You are about to be Sued

At some point in time, creditors will file lawsuits to sue you for the outstanding balances on your accounts. They want their money, but you simply do not have it to give them. As the saying goes, “You can’t squeeze blood out of a turnip.” Although a weird saying, the point is well taken. If you do not have money, you cannot pay your bills, regardless of what they do to exact payment.

However, they can take you to court and sell off much of what you own, in order to get their money. In addition, if you do have a job, the court can order your wages to be garnished. So, before you even take the check to the bank, creditors can claim 10% of your money off the top, to seek restitution. You will never see that money for as long as it takes to pay off the debt.

Time

If you decide to file for chapter 7 bankruptcy, where are of your debts to the average creditor are forgiven, you can count on approximately 10 years of bad credit. If you want to at least try and make arrangement to pay your creditors back, with a repayment plan, you can opt to file chapter 13 bankruptcy. You will generally get your good credit standing back after seven years, assuming you have honored your repayment schedule.

But, if you cannot repay loans and you end up with a judgment against you, it may be 20 years before you can possible be debt free. Ouch! So, it is sometimes a matter of time that is the deciding factor regarding when it is time to file for bankruptcy.

Ultimately, it is up to you to decide when to file bankruptcy. However, do not rush into such a drastic measure, unless you have considered all other options. But, do not put off the problem too long, or your creditors may beat you to the punch line, and your financial troubles will only be magnified. If in doubt, seek professional advice on the best path you can take, in order to reach financial peace of mind.