When to File Bankruptcy: A Brief Guide

In 2018, the American household debt hit an all-time high of 13.21 trillion dollars

It’s no wonder so many people find themselves in financial hardship, struggling to pay off the overwhelming amount of debt they have accumulated. Fortunately, those who are drowning in debt can give themselves a second chance at a successful financial future by filing for bankruptcy. 

While filing for bankruptcy is an option, it’s not a decision to take lightly as there are pros and cons for filing. If you are considering bankruptcy but are not sure it’s the right one for you, read on for a guide on when to file bankruptcy.

What Is Personal Bankruptcy?

Personal Bankruptcy is an option for when you have too much debt and cannot meet your obligations to your creditors. 

There are two types of personal bankruptcy you can file:

Chapter 7: you will use your liquid assets to pay what you can and the rest of your debt is discharged. This type of bankruptcy stays on your credit for 10 years. 

Chapter 13: you agree to pay some debt by following a 3-5 year repayment plan. After you have completed the repayment plan, any remaining debt is discharged. This type of bankruptcy stays on your credit for 7 years. 

Filing bankruptcy will impact your financial standing and your borrowing abilities for many years so it’s important to file only if necessary. Here are 8 reasons why filing may be the best choice for you. 

You Cannot Catch Up On Your Bills

Skipping a payment every so often is one thing but if you cannot seem to catch up on your bills, you are dealing with financial hardship. If you are not able to pay your bills or keep up with payment arrangements, you will be faced with late fees, shut off notices and collection calls. 

Filing bankruptcy will put you back on track so you don’t have to live in fear of the essentials, like utilities, being shut off at any moment. 

You Can’t Afford Minimum Payments

One sign of when to consider bankruptcy is if all of your cards are maxed out and you cannot afford to pay the minimum payments. By missing the minimum payments, you are putting yourself in a deeper hole that will harm your credit, which affects your financial future. 

Filing for bankruptcy will take care of all of those bills so you can move forward and start rebuilding your financial life.

You’re Getting Daily Calls From Collection Agencies

If your phone won’t stop ringing from all the calls from your creditors, it may be time for a change. Once your financial situation gets to the point where you are being hounded by collection agencies, you may find it is too deep a hole to climb out of. 

Thankfully, those collection calls and letters will stop once you file bankruptcy, giving you peace of mind, along with your fresh start. 

You Are Using Payday Loans Every Pay Period

While getting a payday loan can be helpful in the short term, it’s dangerous in the long term. You qualify for a payday loan by allowing the lender to automatically take the loan amount, plus an exorbitant interest fee, from your upcoming paycheck. 

Payday loans are typically used to pay something right away, meaning, your upcoming check will be short the amount of the loan and interest, which will likely cause you to need another payday loan to be able to pay your bills. It’s a vicious cycle, one that seems impossible to get out of and one that will ultimately catch up to you when you are not able to pay. 

If you find yourself not only living from paycheck to paycheck but living from payday loan to payday loan, it’s time to make a change and filing for bankruptcy may be the change you need. 

You Are Using Your Retirement Funds To Pay Bills

Another sign of when to claim bankruptcy is if you have cashed out your retirement fund to pay your regular bills. There are emergencies that may require you to take a loan from or cash out your retirement fund, but that should only be a last result for an emergency. 

While retirement may seem far away, it’s important to start saving now to make sure you are comfortable and secure during your golden years. If you have had to resort to using these essential funds for your monthly bills, your financial situation has gotten out of hand and needs to be reassessed. 

Your Wages Are Being Garnished

If your creditors have sued you, won and are now collecting via wage garnishment, you may need to take some action. 

Having your wages garnished is a scary thing, especially if you were living paycheck to paycheck before the garnishment occurred. With a wage garnishment, you may resort to getting a payday loan, draining your savings, or cashing out your retirement funds, which will only result in further financial hardship.

If you file bankruptcy, your wage garnishment will be reversed, allowing you to be able to take home your full paycheck and get back on your feet. 

Your Dependants Will Suffer If You Do Not File

If you are struggling to keep your head above water and you have people who depend on you to survive, it’s time to consider your options. While it’s admirable to want to get yourself out of a situation, there is nothing wrong with recognizing when you need help. Getting the help you need will give you peace of mind that you can take care of the people who are depending on you. 

You Are Experiencing Stress, Anxiety Or Depression

Stress, anxiety, and depression due to financial hardship can be debilitating. It can make the problem worse by causing you to feel too overwhelmed to help yourself out of your current situation. If you are experiencing any of these feelings due to your financial situation, it’s time to get help, for both your mental health and your financial future. 

When To File Bankruptcy: The Bottom Line

If you have been wondering when to file bankruptcy, this guide can help you make the decision. If you are experiencing any of these financial issues and feel the stress and anxiety of trying to keep your head above water, it may be time to file and give yourself a fresh start.

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