When is bankruptcy the right option?

Posted by Anthony Jackson | No Comments »

Easily the most difficult question that people ask me is when is it time to throw in the towel and head down the block to the friendly neighborhood bankruptcy attorney. You’ve fought the good fight and now it’s time to seek the help of the law as a way to protect you from your creditors, which is the definition of bankruptcy. So when do you know it’s time? Here are three signs…

  1. If your debt is so vast that you simply will never be able to budget or liquidate assets to pay them off even if you live to be 100.

  2. If you’ve been unemployed long enough that you’re savings is gone and you’re tempted to take money out of your 401K to pay your debts.

  3. If you’ve met with a non-profit financial counselor and a debt management plan won’t be able to get you out of credit card debt within 5 years.

You’re right to approach the decision to file for bankruptcy with extreme caution. Bankruptcy is among the worst things you can do to your credit. It’s among the worst because of the severity of the incident as well as the breadth of damage to your credit files. When you file for bankruptcy, the credit bureaus will see the filing within days by using a service called PACER. PACER, or Public Access to Court Electronic Records, allows any party, including the credit reporting agencies, to quickly access public record information, such as a bankruptcy.

Once the information is added to your credit files, the damage will reflect in your credit scores the next time a lender buys it from one of the bureaus. A bankruptcy is so damaging because it’s not only the filing that hurts but also the fact that many of the debts on your credit reports will show as being included in the bankruptcy.

Having said all of this, it’s important to be fair about bankruptcy. It is, in fact, a recognized method of getting out of debt. Attorneys, the court, and trustees of the court administer it. There’s absolutely nothing fishy or unethical about the process or act of filing for bankruptcy protection. But, while it may not be the worst option for you personally, it probably should be your last resort.

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