Should You File for Bankruptcy?

There’s a stigma against filing for bankruptcy and for good reason. It devastates your credit and cripples your borrowing ability. Even though bankruptcy will fall off your credit report after 7−10 years, most loan applications ask if you’ve ever filed. If you say “no” when the truth is “yes,” you’re guilty of fraud and can be prosecuted.

It’s always better to pay off your debts rather than file bankruptcy. A bankruptcy filing could also have an impact on your emotional life or your personal life. People who have filed for bankruptcy report feelings of regret and failure years after filing. As you think about filing for bankruptcy, here are some things to consider.

Have You Tried Negotiating With Your Creditors?

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Creditors would rather settle a debt with you than have it discharged in bankruptcy. It may be easier to negotiate a settlement if you’re already a few months late on the payment. If you’re current, creditors don’t see any reason to lower your debt. That isn't to say you should purposely fall behind on your payments just so you can get a settlement, but if you’re already behind, it gives you a bargaining chip.

Have You Sought Credit Counseling?

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Often when you’re unsuccessful in negotiating with your creditors, a consumer credit counselor can get results. Credit counselors can often get lower interest rates and monthly payments. They don’t have any special powers; they just know the right thing to say. Under the Chapter 7 bankruptcy law, you’ll have to get credit counseling for six months before you can file for bankruptcy, so you may as well explore it as a bankruptcy alternative. This can, but sometimes doesn'tstop the calls from coming. 

Are Your Wages Being Garnished?

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If your creditors and lenders have already gotten judgments against you and have garnished your wages, filing for bankruptcy could stop the wage garnishment and may be able to help you get some of the garnished money back, according to the American Banking Institute.

Do You Have Medical Bills Which Aren't Covered by Insurance?

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There’s a reason that medical bills are one of the leading causes of bankruptcy. It’s because people simply can’t afford to pay those bills, even if they have health insurance. Bankruptcy can provide relief for your medical bills by discharging them completely, or by coming up with a 3- or 5-year repayment plan.

Do You Have Assets?

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If you do not own assets or if the assets you own are worth less than the debt you owe, you might consider filing bankruptcy. Additionally, if you have assets that are secured with a loan, you could file bankruptcy to keep from losing these assets (e.g. a house or a car).

Do You Have Access to Savings?

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When you file for bankruptcy, you'll be required to list out all your assets. While certain assets such as alimony, child support, certain public benefits are protected, general savings generally are not. Filing for bankruptcy may be an option if you don’t have any savings with which to pay back your debt.

Have You Been Sued?

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If you've received a lawsuit summons, you should contact an attorney. Don't ignore the summons or else the plaintiff (the person suing you) could obtain a default judgment against you and could be granted permission to garnish your wages or seize one of your assets. Filing for bankruptcy could prevent any judgments from being obtained against you.

Contact an Attorney

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Every situation is unique. The information provided here is for informational purposes only and is not legal advice. If you are seriously considering bankruptcy, contact a consumer law attorney to talk about your bankruptcy options. An attorney can review the facts of your situation and help you decide if filing bankruptcy is the right option for you.