The decision to file bankruptcy is not one to be taken lightly. Nevertheless, if you are burdened by heavy debt you may see no alternative to seeking protection through the bankruptcy courts. Whether or not this is the best course to pursue depends on a number of factors. Asking yourself the following questions can help you determine whether bankruptcy is right for you.
Have I dealt with the real problem?
Bankruptcy can solve your immediate debt problem, but it cannot address the underlying issues that caused the debt in the first place. Some debtors are forced into bankruptcy through an unexpected job loss or catastrophic medical expenses. But others simply engage in bad spending habits and fail to budget correctly. If this is the case with your situation, you must take steps to remedy the underlying problem. Tighten the belt and learn how to budget to live within your means, lest you find yourself right back in debt again.
How much do I owe and to whom?
You may be overwhelmed by incoming mail, and dread the ring of the telephone. You may be afraid to face the details head-on. However, a clear picture is essential in deciding whether bankruptcy is truly your only option. Review your credit card statements, loan statements, medical bills, auto loans and all other debts so you can determine exactly how much you owe. Just as important as how much, to whom you owe is critical when it comes to bankruptcy because certain types of debts are not dischargeable.
How much can I afford to budget for debt repayment?
Create a budget to show exactly how much you are currently spending and earning each month. That daily Starbucks visit on your way to work might represent $80 per month that could be allocated to debt repayment. Packing a lunch instead of heading to the corner deli may free up another $100 per month for debt repayment. You may be able to benefit from alternatives to bankruptcy, such as debt consolidation or settlement.
What happens to my credit?
Bankruptcy can damage your credit; but so can unpaid bills if you cannot catch up with them. The bankruptcy filing will remain on your credit report for 7 to 10 years, depending on which type of bankruptcy you file and your credit score can suffer as much as 100 points. It will be difficult to obtain new credit in the first few years after bankruptcy, but it is possible to rebound with a solid payment history over a period of time.
What about finding a new job?
Bankruptcy can potentially have a negative impact on your job search. Some employers routinely run credit reports of candidates as part of the pre-employment screening process. The negative credit report could cause an employer to look to another candidate who appears less risky.
Do I have better alternatives?
Do the math – calculate your projected post-bankruptcy income and expenses and your current actual figures. Creating “before and after” scenarios will help you assess whether bankruptcy makes a significant, positive impact on your monthly budget. Be sure to compare these scenarios with not just the status quo but bankruptcy alternatives such as debt management, debt consolidation or debt settlement.