When Does Filing Bankruptcy Make Sense?

If you’re in debt and are considering bankruptcy as an option for you to get needed relief, perhaps just hearing the word “bankruptcy” makes you extremely nervous. Maybe the word conjures up images in your mind of losing everything you have and not having a financial future.
Relax. It’s not what you think. Regardless of what you may heard about bankruptcy, it is really nothing more than a petition that you file with the court in order to get relief from debts that you can no longer pay.
If you were physically sick, the best thing to do is to go to get immediate medical help. If you’re not well, you may be admitted to a hospital where you can get medical care and treatment until you recover and are able to function again.
The same is true if you are financially sick and are no longer able to take care of yourself. I always tell my clients that bankruptcy is like getting a needed surgery. Yes, it may hurt but it’s exactly what you need to get better.
How do you know if bankruptcy makes sense for your situation? Well, here are 4 situations that may tell you if you are going in the right direction.
You can no longer afford to make your monthly debt payments. If you are always late in making your debt payments and you are sometimes forced to borrow even more just to pay other debts, this is a serious sign of financial trouble. To get out of debt, you need to stop borrowing and not do the exact opposite. Otherwise, the financial hole you’re in just keeps getting deeper every month.
Your income is not sufficient to even pay for living expenses, let alone pay your debts. This is one of the most common reasons why people file bankruptcy. If you have suffered a loss of income and can’t even cover basic necessities such as rent, food, utilities, etc., the question is whether or not you’d be able to replace the lost income right away in order to avoid defaulting on your debts. If your current situation is likely to continue for a long period of time, it will not take very long to be broke unless you have financial reserves. Sadly, most people don’t.
Your credit is already damaged and beyond repair, and you want to rebuild it as quickly as possible. A lot of people consulting with me about bankruptcy often ask about the impact that filing may have on their credit. That’s understandable especially if maintaining a good credit rating is important to you. But if your credit is already damaged due to late payments, repos, foreclosure, lawsuits or judgments, what “credit” are you really trying to protect? Filing bankruptcy may actually help you re-establish credit much faster (usually 2-3 years) instead of having a lot of collection accounts on your record. Remember that as long as you do not pay creditors, they will continue to report you month after month which then makes it impossible for you to regain your credit.
Because every situation is unique, there may be reasons other than the above which could make filing bankruptcy the best option in getting out of debt. Before going down this road, of course, you need to know the pros and cons by seeking legal advice so that you can make an informed decision. If you have not read my book, “What You Need to Know Before Filing Bankruptcy”, you can download it free of charge at www.beforefilingbk.com. (None of the information herein is intended to give legal advice for any specific situation. Ray is currently offering free phone consultations to discuss your personal situation. You can call his Valencia office (RJB Law) at 866-477-7772 or (661) 775-4880. Website: www.familyfinancelawyer.com)