Bankruptcy can have life-altering consequences, and in many cases, those consequences can last a very long time. With that in mind, filing for bankruptcy is often a last resort for many people—a decision that makes the most sense when you have exhausted all other avenues for debt relief.
If you are unsure how to proceed, here are several signs that might mean it is time to consider bankruptcy.
You are in overwhelming debt
The point at which debt becomes overwhelming is subjective. However, debt can be extremely difficult to manage if it is more than 40 to 50 percent of your annual income.
If you are struggling to make minimum payments or your debt is not decreasing despite regular payments, it might be time to consider bankruptcy. For example, a Chapter 7 bankruptcy can discharge your debts while a Chapter 13 bankruptcy can offer a more reasonable way to repay them.
You are facing foreclosure or repossession threats
Losing your house or vehicle can put you in greater financial hardship. If foreclosure or repossession is looming, bankruptcy might help you keep these assets.
For example, a Chapter 13 bankruptcy can provide you with a more manageable payment plan. You may be able to keep your home or car as long as you keep up with repayments.
Collectors are hounding you
While creditors have the right to attempt to collect debts, excessive or abusive practices are illegal. However, that does not always stop them.
If you are receiving calls at all hours or feel constantly harassed, bankruptcy can provide relief through an automatic stay. This temporarily stops creditors from collecting your debt through lawsuits or other means.
Creditors are garnishing your wages or freezing your accounts
Certain creditors may obtain court orders to garnish your wages or even freeze your accounts. Naturally, this can put you in a more difficult financial situation. Filing for bankruptcy can stop this process and potentially help you unfreeze your accounts.
You are relying on credit cards or loans to get by
Using credit cards or loans for day-to-day expenses will dig you deeper into a financial hole. When your monthly expenses far surpass your monthly income, it may be time to consider bankruptcy. This is especially true if the pattern persists for more than a couple of months.
Filing for bankruptcy can have negative consequences, but it may be the best solution for you right now. Consider speaking to a bankruptcy attorney who can help you make an informed decision.