Bankruptcy helps financially strapped people who cannot pay their debts. These people could have amassed debt for reasons beyond their control, such as a spouse’s death or catastrophic medical expenses. While claiming bankruptcy for emergencies allows you to get your finances under control, it is not the answer to poor planning.
For example, let’s say you have a mortgage and an auto loan. You work in a prestigious company and have a high income. However, your job is quite stressful, and you decide to quit one day. You get another job, which pays less but makes you happy. The problem you face now is paying down your loans. Try as you might, your small income does not allow you to make even one of the monthly payments.
So, should you declare bankruptcy? You could, but since you decided to work a low-income job, you have to figure out how to make things work.
Bankruptcy should be seen as an opportunity to rebuild your finances. Remember: If you file for it in the above scenario, your credit score will take a serious hit, ruining your future chances of getting a loan. Consider other debt-relief options before making a decision.
Ask any of your family members or friends if you should file for bankruptcy, and they will all say, “Only as a last resort!”
Deciding whether you should file for bankruptcy is not just a matter of looking at its pros and cons. It’s a more complicated issue that requires you to figure out what outcome you are looking for. Here are a few things to consider:
- What kind of debt do you have
- Do you qualify for bankruptcy
- If you file for bankruptcy, will you be allowed to keep your car and home
- What will be your financial step 10 years from now when you see bankruptcy written on your credit report
- Is there any other way you could pay your debt, perhaps by asking a friend for a loan
When to File for Bankruptcy
According to Bankruptcy Stats by Debt.org, the biggest cause of bankruptcy is medical expenses. Other causes include job loss, divorce, and student loan debt. Mostly, two of these causes team up, torching your financial plans.
There are many misconceptions about bankruptcy. People often believe that those making this move lived a luxurious life beyond their means. However, taking out a student loan is necessary to continue your education, or you could be battling a severe illness and need money for ongoing treatments.
Debtors trapped in such situations consider bankruptcy when:
- Their home is at risk of being foreclosed
- Creditors are knocking on their door and threatening to sue
- Their income does not allow them to pay for necessities, so they use a credit card
- They are thinking about dipping into their 401(k) account or retirement fund
In conclusion, filing for bankruptcy might be an easy way to get out of debt. However, you need to consider some things, such as if you will have to sell your assets or take other extreme measures to pay the creditors.