Updated: May 26
There are many reasons why you may find yourself with a huge amount of debt. Maybe you were wrongfully detained by law enforcement, lost your job, incurred huge medical bills, or made some bad investments. When you're overwhelmed with debit declaring bankruptcy is one of many options.
If you find yourself in a situation where your income simply isn't enough to cover the monthly payments on your debts, bankruptcy is often the first option that comes to mind.
Consider these aspects of bankruptcy:
The benefits of bankruptcy. There are some real benefits to filing for bankruptcy.
You won't necessarily lose your home or car.
If you file bankruptcy as an individual, your spouse's assets can't be touched, and your pension remains protected.
You can still have a bank account and apply for credit.
Some things that aren’t protected by bankruptcy. There are certain things that aren’t protected if you file for bankruptcy.
For example, any secured debt, such as a home loan, isn’t protected. Filing bankruptcy doesn’t instantly mean you’ll lose your house. However, you’re still required to make your monthly mortgage payments.
Alimony and child support won’t be discharged by filing bankruptcy, and, in most cases, you’re still responsible for paying off any student loans.
Check out these alternatives to filing for bankruptcy:
Negotiate with your creditors. You can contact your creditors and try to work out a payment plan. They may be willing to reduce your interest rates or adjust your monthly payments to something you’ll be able to afford.
You can also try to extend the length of any loans, which would reduce your monthly payments and give you more time to pay.
Take out a consolidation loan. A consolidation loan will allow you to roll several smaller debts into one larger loan with a lower interest rate than your other debts.
You’ll then have monthly payments that are considerably less than the total of the individual debts.
Get credit counseling. Credit counseling will help you analyze your income and spending habits so that the cause of your financial issues can be addressed. Although these agencies don't lend money, they’ll help you figure out how to distribute your money to your creditors and pay off your debts.
Is Bankruptcy Your Best Option?
The decision to file bankruptcy is a big one. If some of the non-bankruptcy options will work, you may want to consider one or more of those options instead. However, there are circumstances where you might still be unable to meet all of your monthly obligations, and you fall further into debt with each passing month.
How to decide if bankruptcy is the best option for you:
Carefully consider all of your options. If there’s any doubt in your mind about the decision to file bankruptcy, don't rush into the decision.
Once you decide to file for bankruptcy, there’s no turning back. Bankruptcy will affect you and your credit for many years to come.
Seek legal advice. If you’re convinced that bankruptcy is your only option, consult with a lawyer, financial planner, or some other financial professional for more information about the different types of bankruptcy.
Bankruptcy isn’t the answer for everyone because each individual circumstance is different. It isn’t a cure-all that will make all your financial issues go away. With that in mind, bankruptcy may be your best option. With expert help, you can decide if it’s the best fit for your circumstances.