Many individuals hesitate to file bankruptcy even when facing overwhelming debt. Whether the debt is largely because of divorce, job loss, medical emergency or emergency home repair, countless people would rather continue to fight even when there is no clear path to victory. Fortunately, the Bankruptcy Code exists to provide a way to find a stable financial future.
While the desire to battle through adversity and find the winning financial formula is strong, there are numerous warning signs that signal it’s time to seriously consider bankruptcy as your main course of action, including:
- You’re facing the loss of assets: Whether this is a home foreclosure or a vehicle repossession, when creditors are ready to repossess property based on secured loans, it is time to reevaluate your financial options. Chapter 13 bankruptcy, for example, is designed to give you time to catch up on mortgage payments while protecting your home from foreclosure.
- Your wages are being garnished: Creditors often pursue legal action to recover debt. This can be accomplished through wage garnishment – where a percentage of your income is automatically removed and handed over to the creditor.
- You pay all your bills with credit cards: While rotating credit card debt from one card to another is not a new strategy, when you are forced to pay bills such as utilities and student loans with credit cards, you might need to consider bankruptcy to help eliminate unsecured debt.
- You use your retirement funds to pay bills: For many, seeing a lump sum of money dedicated to an IRA or 401(k) sitting in reserve is hard to ignore. Unfortunately, early withdrawal of these funds can potentially lead to fees, penalties and tax consequences.
- Your revolving debt exceeds your annual income: When your debt has no set end date (compared to the final payment of a car loan, for example), this is considered revolving debt. Credit cards are the most common form of this but are often joined by personal lines of credit and home equity lines of credit. When your total amount of revolving debt exceeds your income for the year, it might be time to consider bankruptcy.
Based on their unique circumstances, consumers typically have the option of Chapter 7 bankruptcy or Chapter 13 bankruptcy. Generally, the means test serves as a guidepost to clarify an individual’s eligibility. It is imperative, however, to learn as much about your options as possible before your mounting debt becomes too overwhelming.
Seek the guidance of an experienced bankruptcy attorney who can answer your questions and tailor a strategy specific to your unique needs.