When debts mount and you have no way to pay back you may begin considering bankruptcy court. But is this the right decision for you?

Every month your debt mounts. Every month when you do your bills you wonder how you will pay them. Every month you consider how much more of this you can take. If your financial problems have become insurmountable, you might want to start considering bankruptcy. While this is a measure of last resort, it may be the only option left for you. Understand the implications and consequences here.

Bankruptcy Simplified

Bankruptcy amounts to a formal declaration from a court that you are unable to pay your bills. You and your lawyer file papers, including a list of all your debts. You and your lawyer then appear with a trustee before a judge. After your assets and debts have been inventoried, you may have to make some repayment of the debt. Most of your debt, however, will be forgiven through a process known as “discharge.” When debt is discharged you are no longer legally liable for it. In fact, you can sue creditors who attempt to collect debts that have been discharged through the bankruptcy courts.

Effects of Bankruptcy

The effects of bankruptcy are far reaching. The bankruptcy will stay on your credit report for ten years, as compared to default debt, which stays on your credit report for seven years. Further, bankruptcy will not eliminate all forms of debt. Student loans, criminal and civil fines, alimony and child support payments and back taxes are not discharged through bankruptcy. Some debts incurred recently before you filed might not be discharged. This is to discourage people considering bankruptcy from incurring additional debt knowing that it will be discharged.

Now for the good news: Your creditors have to stop attempting to collect on your debts from the day that you file. If your creditors contact you after they receive notice that you are filing for bankruptcy you may sue them for $1,000 for every time they contact you under the provisions of the Fair Debt Collection Practices Act. Garnishments on your wages and bank accounts will immediately cease. This can free up money that you desperately need now. Best of all, you are on the path to financial recovery.

Alternatives to Bankruptcy

Bankruptcy is a last-ditch effort to stay in your home and secure your assets. There are a number of options that you should pursue before you file paperwork with the bankruptcy courts. Start with the easiest and proceed to more drastic measures as circumstances dictate.

  1. Negotiate directly with your creditors. Before things go to collection agencies, get your creditors on the phone and see if you can work out a mutually beneficial arrangement.
  2. Get credit counseling. Talk to a third party and see what advice they have about how you can pay back your outstanding debts. In some cases, these non-profits will negotiate a settlement for you. Go to the Department of Justice’s website and see their list of reputable credit counseling agencies.
  3. Offer a settlement. If your debts have gone into collection, you may be able to negotiate a settlement. Collection agencies pay pennies on the dollar for your debt. This means that you may be able to get away with paying as little as a quarter of what you owe. Be careful, however. Making any payment resets the clock on your debt, extending the statute of limitations.

Knowing When To File

The sheer size of your debt may not be reason enough to declare bankruptcy. Always remember that if you don’t have the money to pay off your debts, there is very little that your creditors can do to you. Bankruptcy may be the right option for you if:

  • You own a home or other real estate.
  • You own a car valued at over $3,500.
  • You have a bank account.
  • You have a job where you take home more than $330 every week.

In this case, you have assets that may be attacked by your creditors if you do not pay your bills. Bankruptcy will protect these assets, allowing you to stay in your home, keep your car and enjoy your wages without garnishment. Keep in mind that in the event of a secured loan, such as a mortgage or a car note, you must be able to make the payments to keep the property in question.

Declaring Bankruptcy

When you have exhausted other options, bankruptcy may be a prudent option to get you financially solvent. When you declare bankruptcy, make sure to have a qualified attorney on your side. This will ensure that you get all of your debts discharged properly.