Should I File for Bankruptcy?

If you ask a bankruptcy lawyer if you should declare bankruptcy or not, be aware that they have a vested interest in telling you, “Yes, filing for bankruptcy is exactly what you should do.” Granted, there are times when filing for bankruptcy makes sense. However, there are also many people who stand to profit from your bankruptcy and will encourage you, with dubious intentions, to go forward with it. This article is meant to be a balanced guide to help you answer the question, “Should I declare bankruptcy?” by looking at both sides of the bankruptcy equation. Take a close look at these four reasons why you should not file for bankruptcy and these three reasons why you should.

Reasons Why You Should Avoid Bankruptcy

1. Say “goodbye” to good credit for at least a decade.

What can happen in a single decade? Between 2003 and 2013, here are a few of the things that have happened:

  • iPhones and iPads were invented
  • America elected its first minority president
  • The economy tanked and some of the world’s largest banks failed
  • The Tea Party emerged as a powerful political force
  • The U.S. left Iraq and started to withdraw from Afghanistan
  • Harry Potter finally ended

What has happened in your own life over the past decade? Relationships may have come and gone; you may have sent your children to college; you may have changed jobs; you may have lost (or gained) weight or hair.

When you declare bankruptcy, your credit will be devastated for at least a decade, maybe longer. Just think about all the changes that may happen in your life over the next ten years. Can you really afford to enter the next decade with an abysmal credit score?

2. Say “goodbye” to some of your favorite stuff.

If you loan your lawnmower to your neighbor one afternoon, you’ll start getting antsy if he hasn’t given it back within a few days. Try to imagine what it would feel like to give away your lawnmower, along with most of the rest of the stuff in your garage, basement or storage unit, permanently. When you declare bankruptcy, the courts can confiscate most of your possessions to pay your debt down. Some items can be protected, but there’s no way you’ll be able to protect all your possessions during the bankruptcy process.

3. Say “goodbye” to your credit cards.

Credit cards might have been what got you into financial trouble in the first place, but once you declare bankruptcy, you will be giving up the ability to get any new credit cards. It’s also quite likely that the credit cards you do have will be revoked.

4. You won’t get off scot-free.

Keep in mind that bankruptcy will not eliminate all your debts. Critically, bankruptcy will not eliminate student debt, even if it’s the crushing weight of too many student loans that got you to where you are now. Bankruptcy also doesn’t stop you from having to pay taxes or court-ordered fees. Bankruptcy, for example, will not take care of your back taxes, your child support or your DUI bill.

When It’s Time to Declare Bankruptcy

1. You’ve lost your job, have little prospects for a new job and are in over your head in debt.

If you already have a mortgage, car payment, medical bills, student loans and consumer debt, then lose your job and feel certain that you may not be able to get a new job for some time, bankruptcy might become your only viable option.

2. Payments on your debt are larger than your salary.

When the combined payments on your debt start to outpace your salary and you’ve already talked to your creditors to reduce your payments as far as they are willing, it might be time to declare bankruptcy. However, if you haven’t spoken to your creditors yet to see if some type of arrangement can be made, pursue this option first before seriously considering bankruptcy.

3. All your possessions can be easily replaced and you don’t have any property to lose.

Generally, your own home or apartment is exempt from the possessions that the courts will liquidate in order to pay off your debts. However, if you own more than one property, everything other than your home is likely to be seized to pay off your debts. Furthermore, your home loan is very unlikely to be canceled due to bankruptcy. Bearing this in mind, you are a better candidate for bankruptcy if you can stand to lose many possessions and you have no property that can be seized.

There Are Almost Always Alternatives

Before your depression over your situation convinces you to file for bankruptcy, make sure you exhaust all your other options. There are certainly times when bankruptcy may be the best solution to your problems, but usually it is possible to negotiate with creditors, courts and other agencies before bankruptcy becomes your only choice. Just remember: Many other people have faced situations just like yours and lived to tell the tale, including Henry Ford, Michael Vick, Zora Neal Hurston, Wayne Newton and countless others.