When Should You Consider Filing for Personal Bankruptcy?

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Most people are reluctant to file for bankruptcy even when they realize that their debt has spiraled completely out of control, and their physical and emotional wellbeing is being severely threatened. It is very common to find debtors just ignoring the situation in the hope that things will somehow get better or to think they can resolve the situation with a little more determination. In the meantime, the problem gets escalated due to the steep interest rates and accumulation of penalties.

The disinclination to file for a bankruptcy is largely due to the fact that such a move is regarded to be the ultimate failure having a social stigma that cannot be ignored and the fear of the loss of important assets. However, if you do need to file for bankruptcy, it is important to apply sooner than later. Some indications that you need to consider a personal bankruptcy filing:

Debt keeps mounting: Despite your best efforts to repay as much as possible, if you see that the outstanding at the end of every month climbing instead of decreasing.

Borrowing to repay debts: If the only way you have been able to stave off debt collectors is by borrowing more money, even though you know that the reprieve is temporary.

Can’t afford a repayment schedule that wipes off debt in three years or less: if your calculations reveal that the repayments per month that you can afford to make will extend the repayment schedule beyond 36 months, you can be sure that you will stay mired in debt for a very long time indeed due to the cumulative effect of the interest.

Not able to make the minimum payments due per month: Many times it is not a single large debt that can kill your finances but a large number of them that need to be serviced with minimum payments every month. The total sum of money that you require in this way every month may well be quite substantial, and if you are missing out on the monthly payments then the interest will start to accumulate faster, which together with the penalties for missed payment can have the debt spiraling out of control.

Using retirement funds to pay debts: If you are approaching retirement and you have been using retirement funds to service the debt repayments, you really have a serious problem on your hands. Most people jeopardize their income post retirement fearing the stigma associated with a debt default and bankruptcy, however, this is the time when reason should rule, and you should be asking your financial counselor what is Chapter 7 bankruptcy filing.

Employment being threatened: if any of your creditors start calling up your employer with calls for garnishing your wages, it might upset your employer and your job could be at risk. In case you lose your job you will find it impossible to repay your debts.

Upside down on your home’s second mortgage: In these days when property values are depressed, you can be sure that many of your debts will still be outstanding even after your mortgage is foreclosed. Not only do you end up losing your home but also you will still have creditors harassing you for collection. Filing for a bankruptcy will enable you to avoid the ignominy.

Conclusion

While there are a number of options available to get out of a debt trap such as consolidation loans, debt settlement, creditor negotiation, as well as making changes to your lifestyle, filing for bankruptcy can always be considered when there are no other avenues.

Author bio: Melanie Jones is a very well-reputed financial counselor working for a leading retail financial institution. A prolific blogger on debt relief, she has written a number of articles on what is Chapter 7 bankruptcy and how people in debt can use the filing strategically.