When Should Personal Bankruptcy Become an Option

When Should Personal Bankruptcy Become an Option

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Bankruptcy is a serious process that should never be taken lightly. It is one of the most extreme ways to deal with overwhelming debt. Personal bankruptcy is also sometimes the only way a person or family can return to a state of financial stability. There are several situations when personal bankruptcy can become an option and in many cases all of these situations should be happening before bankruptcy becomes an option.

A Foreclosure or Repossession Is Imminent

An imminent foreclosure or repossession is a sign that bankruptcy has become a valid option. Failure to take action can result in losing a home or losing personal assets to creditors. Personal bankruptcy will not usually get rid of these types of secured debts or the risk of eventual repossession. What it can do is restructure the debts so that it is possible to slowly pay down a home or car without losing the asset.

Debt Keeps Increasing Every Month

Another sign that it is time to consider bankruptcy is if debts keep increasing every month despite efforts to budget, cut back and negotiate with creditors. This can happen due to revolving late fees or bills from a financial emergency. If there is no way the accumulating debts could ever be repaid, then calling a law firm to start filing for bankruptcy is the only option. Bankruptcy can discharge or restructure the debt so that it is possible to become financially stable again.

Long-Term Loss of Income

Long-term loss of income means that it will eventually become impossible to continue paying existing and new bills. This can occur because of layoffs that force a job change, reduced working hours or even a personal injury. Bankruptcy should be considered if the new lower income is so far below what is already owed that the household will be completely underwater in the next two to three months. Bankruptcy is an effective option to help take care of past debts so that the new reduced income can be used to pay for necessities like food and housing. 

Lawsuits or Wage Garnishments Start

Bankruptcy should always be considered if lawsuits from creditors and wage garnishments start. These actions indicate that bills and debts have gone unpaid or ignored for a very long time. The inability to pay the debt in order to avoid legal action shows that it is impossible to regain financial stability without some type of outside help. Filing for bankruptcy can help to reorganize finances, negotiate with creditors and possibly restructure some of the debts so that they can be paid down or discharged over time.

Maxing Out on Credit Cards

It is easy to start charging everything to a credit card when all your other funds have run out. Once all your cards are maxed out there is often little hope that you will find a way out on top of all your other financial burdens listed above.

Bankruptcy is not an option that is ever ideal, but in some cases it is the only option and it is only then that you should really consider it.

Author Bio: Annette Hazard is a freelance writer that suggests Lynch & Belch P.C. when in financial issues. She usually writes small business and finances.

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