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What are the signs that it’s time to file for personal bankruptcy?

Most people who declare bankruptcy regret waiting too long. Life is short; if debt is destroying your life, please ask yourself if the time has come to file for personal bankruptcy.

How do you know if it’s time to file for personal bankruptcy? There are five primary signs that bankruptcy has become a necessity:

•Paying just the minimums on credit cards.
•Maxed out credit cards.
•Bill collectors are troubling you and you can’t pay.
•Credit cards are needed for essentials like groceries and gas.
•Debt consolidation seems to be the only alternative to bankruptcy.

Many people with unmanageable debt also have emotional signs that bankruptcy has become necessary. Stress, anxiety and insomnia are health hazards that unmanageable debt often causes. If you feel that debt manages your life rather than you managing your debt, you are likely to experience emotional consequences. It’s important to ask yourself: How can I regain control of my life? Is personal bankruptcy the way?

Here’s how to answer these questions.

Financial assessment

Being in debt and considering bankruptcy may be scary, but it’s important to make cool-headed, logical decisions when it comes to money. Many people actually don’t know how much they owe, which makes logical decision making impossible. The first step in a financial assessment is accounting for all the debt and adding the payments into your budget. Then compare it to income.

Are you solvent?

If the answer is no, then there must be a clear path to solvency or bankruptcy will become necessary. When no path to solvency exists, bankruptcy should be filed without delay unless you have significant assets to lose.

•Solvency can sometimes be achieved without bankruptcy. What options do you have?
•Moving to a less expensive home?
•Selling assets to raise cash and pay off debt?
•Increase income by changing jobs?
•Take on a second job?
•Move in with friends or relatives while paying off debt?
•Take on a roommate?
•Credit counseling?

These solutions tend to work for those with small debts and low amounts or responsibility. People with lots of debt and lots of responsibility may find it too difficult to create a path to solvency without taking action in bankruptcy court, both to eliminate debt and to protect their property from creditor seizures of vital assets, such as homes, vehicles and businesses.

If you’re living on credit cards that are killing you with interest and getting closer to maxing them out, a major change that allows you to pay them off must happen before you run out of credit and default. If debt is escalating and no path to solvency exists, it’s past time to consult a bankruptcy attorney.

People also asked: Is it better to file a Chapter 7 or Chapter 13?

It all depends on your situation and whether you are eligible for a Chapter 7.

In a Chapter 7 bankruptcy, most types of debt are discharged. Exceptions include student loans, taxes and child support. An automatic stay prevents collection activity from the day bankruptcy is filed until the case concludes, a period of several months in a Chapter 7. Though some debts aren’t eligible for discharge, the automatic stay still halts collection activity, which gives the debtor a window of time to get his or her finances under control. It also halts any legal actions by creditors, including the following:

•Foreclosures.
•Evictions.
•Auto repossessions.
•Wage garnishments.
•Bank levies.
•Creditor lawsuits.

If you are the subject to any of these legal actions, be sure to consult with a bankruptcy attorney about getting them stopped. It’s crucial to file before creditors complete these actions and seize the assets.

People with large amounts of home equity usually opt for a Chapter 13. Under a Chapter 7, the home would be lost in a forced sale, and the equity would go to the creditors. Chapter 7 does allow people with small amounts of equity to keep their homes in some cases. In a Chapter 13, the court adjusts mortgage payments to an affordable level, which is why Chapter 13 is often referred to as the home-saver bankruptcy.

A Chapter 13 also benefits people with large amounts of non-dischargeable debts. Though the debts remain, the court requires creditors to lower payments to the level where the debtor remains solvent for the length of the bankruptcy case, which is usually five years. This makes it possible for the debtor to better manage those debts.

Reasons for Massive Debt

Americans are going bankrupt by the millions. There are myriad reasons for this epidemic, including lost jobs, divorces, money mismanagement, poor budgeting skills, rising costs of living, the list goes on.

Poor Savings Rate

The majority of Americans live paycheck to paycheck while carrying uncomfortable debt loads. Financial experts advise households keep 6 months of living expenses safe in the bank. Additional savings should be invested for the future. Despite this sage advice, few have the ability to follow it. Their incomes are too low, their living expenses are too high, or both. Financial emergencies require using credit, which only makes it even harder to save. Lack of savings leaves families one emergency away from bankruptcy.

The bankruptcy code works in the favor of middle- and working-class people who struggle to make ends meet. Americans are under increasing pressure to keep up with high costs of living while wages stagnate. This makes bankruptcies inevitable.

If the time has come where bankruptcy is necessary, there is no reason to delay consulting an attorney. The attorney will know how to best time the filing of the bankruptcy petition. Once it’s filed, you can immediately start saving for an emergency fund that helps you avoid going bankrupt again.

Border Law PLLC is a trusted consumer debt law firm in Michigan. Located in Southfield and serving clients throughout the state of Michigan we specialize in Chapter 7, Chapter 11, and Chapter 13 Bankruptcy. Our goal is to use our 15 years of knowledge and expertise to provide a stress free and smooth experience for the individual or business facing bankruptcy. We can pave the way for debt relief and help clients get the fresh start they deserve. Call today for a Free Consultation!