When you are struggling with debt, one of the things that you may want to look into is bankruptcy. Not everyone chooses bankruptcy, but it can be a great solution in certain circumstances.
When you are considering bankruptcy, remember that there are a lot of myths about bankruptcy circulating in the public. Bankruptcy won’t ruin your credit forever, and it doesn’t make you a bad person.
When should you consider bankruptcy?
Chapter 7 bankruptcy, in particular, is for people who have limited means. If your income each month is more than the state median, then you will need to take a means test. If your income is below the state median, then you may be able to move forward with your application without that test.
You may want to consider bankruptcy if:
- You are out of work, retired or have access to limited funds
- Your debts are past due and have gone to collections
- You have a limited savings
- Your credit score has already been impacted by missed payments
- Your home is going into foreclosure
Be aware that filing for Chapter 7 bankruptcy doesn’t guarantee that you’ll be able to get one. The judge and others involved will need to agree to the bankruptcy. However, if you can show that you have tried to pay but have no method of paying back what you owe in full, you’ll have a better chance of filing for bankruptcy and emerging from it successfully in the future.
Are there alternatives to bankruptcy?
Yes. There are many alternatives to bankruptcy that you can try. Some include negotiating directly with your creditors to lower payments, negotiating to forgive debts or consolidating debts into a lower monthly payment.
When should you consider alternatives to bankruptcy?
If you are still bringing in an income and have not missed payments on debts, it’s smarter to contact your creditors first before turning to bankruptcy. Even creditors understand that people are human and have real issues that come up in life. They may be able to forgive a month of missed payments, fees associated with missed payments or help you reduce your interest rate to lower what you owe each month.
It is worth looking into alternatives, because they will help you pay down debts without requiring bankruptcy. Bankruptcy stays on your record for many years and can make it hard to obtain credit, so if you can avoid it, it’s worth trying alternatives instead.