Being declared bankrupt may be the last thing that you would want. However, it may be better to be in this situation so as to salvage your financial condition. When you find yourself unable to pay off your creditors and when you are barely making enough money to cover monthly expenses, declaring bankruptcy may be the best option. So, when would it be best to throw in the towel?
Indicators that your financial position is at risk
- You are not really sure of the amount of money that you owe. It is an estimated amount, but not an exact figure.
- Bill collectors are calling you
- You rely on the use of credit cards to settle payments for basic necessities
- The payments that you make on your credit cards are quite minimal
- You are considering debt consolidation so as to get out of debt
- You feel anxious and not in control whenever you think about sorting your finances
The above indicators paint a very tough financial situation. In such cases, all that may be occupying your mind is the huge amounts of debts that you owe and the reality that you may possibly not pay them off anytime soon. When you discover that you owe more than you earn and may afford to pay off the debts, it is an indicator that you should probably file for bankruptcy. Note you should earn an income which is below the level stated by the law so as to qualify for bankruptcy.
However, if you are to consider filing for bankruptcy, do note that not all debts may be discharged. The following debts should be paid even if an individual has been declared bankrupt:
- Student loans
- Criminal restitution and court fines
- Personal injury caused by driving under the influence of alcohol or drugs
- Child support
When you are ready to be declared bankrupt, you should ensure that you will disclose all your assets and liabilities. Failure to do so may mean that some of your debts will still need to be paid off even after being declared bankrupt.
You may declare bankruptcy after ensuring the following areas may not be adversely affected:
Pension plans and insurance policies
Find out if your policies will not be affected by bankruptcy. Some insurance policies and pension plans are protected by state laws and are not affected by bankruptcy proceedings.
You should ensure that you will not risk losing your home. The challenge of paying your mortgage may be made easier if your other debts will be discharged. Filing for Chapter 7 bankruptcy may lead to the loss of your home if a lot of equity is invested in it. It is advisable to file for bankruptcy under Chapter 13 if you have a higher income.
Credit card debts
These may not be discharged if you spent beyond your means or if you were not honest in your card application. Although bankruptcy is effective in wiping out such debts, if the mentioned cases apply to you, filing for bankruptcy may not be a good idea.
Declaring bankruptcy is not an easy decision and requires a lot of factors to be considered. However, when you admit that you have a problem with your finances and need a solution, you are on the right track. You then have to weigh in the options that may solve your problem and decide if declaring bankruptcy is the best among them.