To file bankruptcy is an extreme measure. However, this action used in the right way and at the right time can save a lot of money for you and preserve your peace of mind. It also helps you get back on your feet economically. But filing bankruptcy can also be time-consuming and expensive and have an impact on your credit score. It can also have far-reaching effects on other areas of your life. Buying a new car can become difficult while getting a new home or applying for a job also becomes troublesome. If you wait to file bankruptcy until you are broke, it might in reality work against you.
Reasons to File Bankruptcy
Here are some red flags that tell you that your current situation is unsurmountable and filing bankruptcy is the only way out.
1. All everyday expenses are being done by using a credit card: If you are consistently placing gas or groceries on your credit card as there is no cash available it is a red flag and you are on the wrong side of the debts. This is done by people who spend all their monthly income on debt payments. It makes your situation worse.
2. Your interest rates have already shot up because of missed payments: It is tough enough to dig yourself out from debt even at reasonable interest rates. However, if you miss a payment or two, most lenders will jack up the interest rates by 30% or more. When the interest rates are that high most of the payments every month are going towards interest and little towards the principal amount.
3. You are already working on a second or a third job: For most people making the extra income is sufficient to pay off their debts but this may not be the case at all times. If it helps you pay the monthly bills it is fine but many times the debt is already so big that this extra work is not sufficient to make a dent in it. To file bankruptcy will be the top consideration in this case.
Considering the alternatives to avoid filing bankruptcy
To file bankruptcy has long term and significant effects therefore, it is wise to consider all possible options in the beginning. Ask yourself these questions first. If the answer to any of the questions is yes, to file bankruptcy may not be the right choice as yet.
1. Can you somehow find the money to pay the bills yet? You can brainstorm ways of making some extra cash. One might consider taking up second or third jobs although it is not the greatest way of spending your weekends and evenings. However, even though it is for a short time this extra cash can get some recovery in the debt.
2. Have you followed a budget? A lot of people do not follow a budget and therefore are not aware of where their money is going. Without proper budgeting, by using programs such as Mint or by using cash-only envelope budgeting methods it is hard to visualize where the changes are required in your budget which can free up some cash. In most cases, the largest chunk of money goes into transportation and housing costs. Can you cut these costs? For instance, if you live in a rented house you can think of moving to a smaller house or look for a roommate to reduce the renting expenses. You can save on the utilities as well. If you own a large car which is a gas-guzzler sell it to get something small and fuel-efficient. All this money can be used to pay off the debt.
3. Can you negotiate with the lenders? Several lenders can consider lowering their interest rates or make adjustments to your payment plans if you tell them that you are considering declaring bankruptcy. It is particularly true for your credit card companies that are liable to lose the most if you fail to pay them back. They may offer low fixed interest rates for closing the card. Many mortgage lenders offer you a loan modification program. Call them to see if they have such a program before filing bankruptcy. Lenders will not negotiate afterward. When your mortgage is modified enough to avoid bankruptcy it is beneficial to both lender and you.
It might be a good idea to consult a bankruptcy specialist such as The Weller Legal Group before you file bankruptcy. This group has represented debtors in cases of bankruptcy in the area of Tampa, Florida since 1993 and they have helped thousands of clients in bankruptcy matters including chapter 7 and chapter 13 bankruptcies.
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