When is it ok to file bankruptcy?

When is it ok to file bankruptcy? For convenience? Because it is creates a clean slate? Bankruptcy is a scary thing, so be careful when considering to file.

photo credit: SalFalko via photopin cc

photo credit: SalFalko via photopin cc

Those facing financial hardship may consider bankruptcy. In many cases, those individuals think it is an easy way out and that it will fix all their financial woes but they fail to realize it is really about their habits.

Bankruptcy has advantages and disadvantages. It is important that someone considering this option seek good financial counsel BEFORE seeking a bankruptcy attorney. A financial counselor or coach can go over your situation in detail and provide you information.

Such information includes the advantages and disadvantages of bankruptcy.

Advantages include:

  • Automatically stops a foreclosure
  • Stops the interest accrual on unsecured debts
  • Can adjust monthly payments on secured debts (chapter 13)
  • Discharge of most debts (chapter 7)
  • Prohibits the use of further debt unless approved by the court

Disadvantages include:

  • It is on your credit report for TEN YEARS
  • Expensive, may cost anywhere from $1000 to $3000
  • Most job applications require you to indicate if you have filed bankruptcy
  • Does not discharge taxes, child support, alimony, court fines, and government backed student loans.
  • Does not fix your spending habits, only YOU can do that.

My philosophy is very straight forward on how to avoid bankruptcy:

  • Get on a budget
  • Stop borrowing money
  • Take care of the four walls first (food clothing, shelter, transportation) before paying debts
  • Negotiate with debtors if you cannot payback in full

It is ok to file bankruptcy after you have tried everything possible. That means you have to fight. If you get sued and have your wages garnished, THEN it is time to file because you have done everything that you can do.

Don’t file bankruptcy because of the fear of what may happen, file when you have done everything you can do and there is no alternative.

Question: Are you facing bankruptcy or know someone who is? If so, seek a financial coach.