Filing for bankruptcy is a difficult decision. Many people wait years before making the choice to file because of the stigma and fear associated with bankruptcy, and sometimes waiting makes the situation more complicated. If filing for bankruptcy is the best option, you should come to that decision in a timely fashion. Knowing the signs that it's time to declare bankruptcy can help you make a choice that is right for you.
1. Your Income Has Gone Down While Your Debts Have Increased
If your debts are growing and your income is decreasing, this is a good indication that it's time to file bankruptcy. However, before filing for bankruptcy, you also need to ensure that bankruptcy will enable you to live without incurring more debt. If you cannot live on your current income even without debt payments, then you need to make other lifestyle changes before you file for bankruptcy, or the bankruptcy itself will not fix the problem.
Talk to a debt counselor to decide whether or not your income is enough to live on if the debts that are wiped out. You may need to combine bankruptcy with other life changes like getting a new job and moving into a less expensive home. An expert can help you decide what actions you should take.
2. The Majority of Your Debts Are Unsecured
Bankruptcy wipes away most unsecured debts, like credit card debt and medical debt. It does not wipe away debts like mortgages and student loans. If the majority of your debts are unsecured, bankruptcy is a good option. If your debts are secured, then bankruptcy will not help.
3. Bankruptcy Will Improve Your Quality of Life
The stress of living with debt can be terrible. Debt limits mobility and prevents people from making changes that could improve their quality of life. Declaring bankruptcy should enable you to start saving, planning, and developing goals for the future. If unsecured debt is what is stopping you from making major life choices and planning for your future, then bankruptcy may be the right option.
4. You Understand the Consequences
Despite the benefits of bankruptcy, it does have some negative consequences that you must understand before moving forward with a filing. Bankruptcy stays on your credit record for seven to ten years, depending on which chapter of bankruptcy you declare. Chapter 13 bankruptcy also requires you to continue to pay some unsecured debts, even as some are wiped away.
Declaring bankruptcy can also impact your ability to get loans for things like a car or a house. Eventually, you will be able to qualify for a house or car, even with bankruptcy on your credit history. So you may have to pay a higher interest rate, make bigger down payments, and live with less ideal loan terms.
While you can do your best to mitigate these problems by building up good credit in the years after you declare bankruptcy, you won't be able to fully escape the bankruptcy until it has been wiped from your history. Talk to your attorney to ensure that you fully understand the consequences of declaring bankruptcy. Move forward only if you're able to live with these consequences.
5. You've Found a Lawyer You Trust
You're not ready to declare bankruptcy until you've found an attorney you can trust. Your attorney should be someone who provides good customer service, who has outlined the bankruptcy process logically, and who has answered your questions thoroughly. Once you've found an attorney who has a history of helping clients declare bankruptcy successfully, then you may be ready to make the leap.
At Scholtens and Averitt, PLC, we're happy to answer your questions about bankruptcy and help you decide if this is the right thing for you. To find out more, contact us today.