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When Should You File for Bankruptcy?

Of course, filing for bankruptcy is not easy on anyone. The filing process can go smoothly if you have a good lawyer. What’s really difficult is deciding when to file for bankruptcy. Does your financial situation actually call for you to throw in the towel? This article will help you understand which situations call for declaring personal bankruptcy:

Do a Self-Assessment of Your Situation

No one knows your financial situation better than you. So, when deciding to file for bankruptcy, you should do a self-assessment of your financial situation. Even if you feel like your debts are unbearable, you may not necessarily be in the danger zone that calls for declaring bankruptcy. There are several indicators that you are in serious financial trouble. Here is a short list:

  • You get constant debt collection calls
  • You are unable to, and have not recently made, minimum payments on credit cards
  • You don’t know the size of your debt
  • Your family home is at risk of foreclosure due to a debt
  • You have to borrow money to pay for necessities
  • You get a lot of red notices in the mail
  • Your creditors are threatening legal action

If you answer yes to three or more questions above, then you are seriously in debt. If you are unable to pay for everyday necessities without using credit cards or borrowing money in another manner, then you are definitely in the financial danger zone. You could consider bankruptcy as a possible solution.

Consider Alternative Routes

Filing for bankruptcy will lower your credit score significantly. Therefore, it’s not something that should be done frivolously. First, consider if there are alternatives to bankruptcy you can consider. Try calling your creditors and renegotiating the terms of your loans. Most creditors prefer if debtors don’t go bankrupt as a judge could erase the unsecured debt. It’s very likely that the creditor will be able to come into new favorable terms with you.  You can also consider selling stuff around the house to find funds to repay loans. It’s possible that you are spending money unnecessarily, so a household budget adjustment may solve your problems. Exhaust your alternatives first, and then decide to file for bankruptcy.

Consult with an Attorney

If you are really not sure about doing either of the above, you can always consult with an attorney for professional advice. Find a local bankruptcy attorney in Scottsdale or other cities in the state. Most will be willing to hold a consultation for a lowered fee. The state of Arizona does pose limits on how much a bankruptcy attorney can charge so money may not be an issue.

Know What Types of Debt You Owe

Are your debts mostly because of secured loans, unsecured loans, unpaid taxes, or fees due like alimony? Some debts, like taxes and child support, cannot be wiped out by filing for bankruptcy. If you owe a lot of unsecured debt, like credit card debt, then filing for Chapter 7 bankruptcy is a good option.

It all depends on the type of debt you owe, and your income level. Before you file for bankruptcy, make sure you are eligible for it. You may also want to ask your attorney whether a certain type of debt can actually be forgiven by a bankruptcy court.

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