The Right Time : When I Should File for Bankruptcy
Declaring Bankruptcy is a difficult and often traumatic process. Which is why the decision to file for bankruptcy should be taken only after very careful consideration. We live in a world where debt is the norm. So when can you say you have reached the point of no return? How do you answer the question, “When should I file for bankruptcy?”
Am I in the Financial Danger Zone?
Before you file for bankruptcy, there are few questions you must ask yourself that will help you assess your financial status and tell you whether you have entered the financial danger zone:
- Can I afford to make only minimum payments on my credit cards?
- Are my lenders and/or creditors calling me because of unpaid bills?
- When I think about my finances, do I feel frightened and not in control?
- Am I using my credit cards to pay for necessities?
- Am I thinking about debt consolidation?
- Do I know how much I actually owe?
If you have answered “yes” to more than 2 of these questions, then you know you are in trouble.
However, this still does not answer your question – “When should I file for bankruptcy?”
You still have to do more digging before you can answer that question. You have now realized that you are in the financial danger zone.
Now you need to see if you can do something about it. Therefore, the first step you need to take is to make an inventory of all your liquid assets. What you’re doing here is checking how much money you have or can raise.
This inventory should include all liquid assets – bank balances, retirement funds, stock market investments, college savings accounts, your house, your car, any other property you may own, jewelry, etc. Don’t over inflate the value of these items; it is better to err on the side of caution here.
Next, make a list of all your debts – credit card debt, personal loans, student loans, mortgages, car loans, and most importantly, your monthly living expenses.
If your debts are higher than your assets, then you might be able to answer your question.
When should I file for Bankruptcy?
If you have already checked your net worth and you know you are in serious debt, these are the next steps you need to take, before you think about bankruptcy.
- How far behind on your payments are you? If you are a few months behind, then you can try negotiating with your creditors. Most of them would prefer to reach a settlement rather than having a debt discharged through a bankruptcy filing.
- Have you tried a Credit Counselling Agency? Credit Counsellors not only help you get educated on good financial behaviors, but they can also help you by getting you lower interest rates as well as lowered monthly payments. According to the new bankruptcy law, you will need to attend credit counselling anyway if you file for bankruptcy, so you might as well explore this option now.
- Have your wages already been garnished by your creditors?
- Medical bills are one of the biggest reasons for people declaring bankruptcy. Health insurance doesn’t cover many medical conditions, and the exorbitant cost of medical treatment can literally beggar a person. So, do you have medical bills that your health insurer did not cover?
The question, “When should I file for bankruptcy” gets answered here.
If you have already:
- Tried negotiating with your lenders but not been successful,
- Have already been to a credit counselling agency
- May have had your wages garnished by your lenders and creditors
- Have huge medical bills that are not covered by insurance
- Have no assets that you could liquidate or have assets whose value is far less than your debt
- Have no savings
- And may be sued
Then it may be time for you to file for bankruptcy.
Do not wait till you are completely broke before filing for bankruptcy. If you see you are in the financial danger zone, contact an attorney who specializes in bankruptcy law. A good attorney will explore every option with you before finally recommending bankruptcy.