Deciding to file bankruptcy can be a tough decision. Almost everyone confronting the decision vacillates from "Fight" to "Flee": struggle to pay the debts versus get relief from the constant pressure and start over. Our opinion.
To decide, you need to know:
Can you avoid bankruptcy on your own: To explore non bankruptcy alternatives, create a budget for your realistic, monthly expenditures for current living. Include mortgage and car payments, but exclude all other existing debt service. Try these nifty online budgeting tools to help.
With the money you have available each month after paying your current living expenses, can you pay off your existing debts at the current interest rates in 3 years?
Can you reduce expenses, increase income, negotiate rates or sell assets to make that possible?
Consider long and hard before resorting to liquidating IRA's or 401K plans to pay creditors: These assets are generally protected from collection actions by creditors; they are hard to replenish once spent; but most importantly, using retirement savings to pay creditors may create new debt in the form of income taxes and penalties for early withdrawal. Your good intentions to repay creditors may just end up substituting Uncle Sam as a tax creditor in place of your existing creditors.
Who to pay when money is tight.
Can you avoid bankruptcy with outside help: If you can't pay off your debt within three years on the present terms, contact Consumer Credit Counselors, or a similar organization; they can help you make a budget and negotiate a repayment plan that may include a reduced or even zero interest rate on your existing debt. Creditors generally cease collection actions against those participating in CCC plans.
These plans usually work best when the debt is primarily credit card debt. CCC counselors sometimes exclude non dischargeable tax debt from the repayment plan, leaving the consumer paying unsecured, dischargeable credit card debt while non-dischargeable taxes or back support go unpaid. That approach seldom gets the debtor the relief needed.
Debt settlement plans seldom work.
See the dangers of debt repayment programs .
Consider the bankruptcy's alternative to debt settlement.
Off site resources on non bankruptcy alternatives.
If these repayment alternatives are not feasible, consider bankruptcy.
There is no magic formula that tells you whether bankruptcy is the best choice for you. An experienced bankruptcy lawyer is a great resource. Selecting a bankruptcy lawyer.
- the older you are,
- the greater the number of your dependents;
- the larger your debt;
- the smaller your cash reserves or retirement savings; and
- the greater the amount of non dischargeable debt
Legal issues and bankruptcy questions are frequently complex and individual. The information contained here is intended to be educational only: it is not legal advice nor does it create an attorney client relationship between the viewer and the firm. You should consult with a bankruptcy attorney licensed to practice in your state for advice about your particular situation. See Law on the Internet
You don't need bankruptcy protection now if you have nothing that a creditor with a judgment could take from you:
If everything you have is exempt under the law of your state, you have nothing to lose to a creditor and no need for bankruptcy protection now. What's Exempt
On the other hand, if your financial situation causes such stress that it interferes with your ability to work, parent, or sleep, perhaps you should consider bankruptcy as appropriate for your mental health rather than financial health. Particular thoughts on debt and the elderly.