Do you need to file bankruptcy?

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:

The alternatives to bankruptcy:

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?

Forget minimum monthly payments: calculate what it really takes to pay off credit cards at credit card interest rates with this online tool. Consider, too, the alternative uses of that money.

Can you reduce expenses, increase income, negotiate rates or sell assets to make that possible? 

bankruptcy bombshellConsider 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.

blueedgedbulltet.gif (1080 bytes) See the dangers of debt repayment programs .

Consider the bankruptcy's alternative to debt settlement.


blueedgedbulltet.gif (1080 bytes) Off site resources on non bankruptcy alternatives.

Consider bankruptcy:

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.

In general,

  • 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

the more likely that bankruptcy is appropriate for you. Profile of the typical bankruptcy filer. Are bankruptcy myths holding you back? You can file without your spouse. Favorite excuses not to file

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.

More on deciding to file bankruptcy:  
Which chapter is best suited to my situation
What debts will be discharged in bankruptcy
How mortgages, credit cards, and other debts are treated in bankruptcy
Issues before, during and after bankruptcy
Prefiling preparation for bankruptcy
Filing without your spouse

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