Should I File Bankruptcy?

Has your financial situation got so out of hand that bankruptcy seems like the only plausible solution? But before you file bankruptcy through the court system, it’s best to take a step back and assess your situation to determine if this is the best course of action. You should also understand your options and seek professional guidance before moving forward.

How Bad Is Your Financial Situation?

When the debt collectors are calling, your credit rating is tanking, and you’re tossing and turning every night thinking about how you’re going to get out of the debt hole, you may be inclined to do whatever it takes to find relief quick, fast, and in a hurry. But is your situation really that bad that it warrants a bankruptcy filing?

Some questions to ponder:

  • Do you rely on credit cards to survive?
  • Are you working several jobs to afford the minimum payments on your debts?
  • Can you only afford to make the monthly minimum payments on your credit cards?
  • Do you struggle to make the minimum payments on your credit cards because of penalty APRs, which have caused the balances to skyrocket even more?
  • Have you cashed out your retirement fund to pay down debts but are still struggling to stay afloat?
  • Are you wages being garnished to satisfy judgments?
  • Have you drastically minimized your lifestyle to survive, but the debt payments are still too excessive?
  • Are you avoiding debt collectors because you’re overwhelmed and don’t have the funds to pay them?
  • Are you too embarrassed to review your billing statements to determine how much you actually owe?
  • Is your debt load causing your stress levels to increase and impacting your everyday functionality?

The Case for Bankruptcy

While your credit will take a hit when filing for bankruptcy, there are several reasons why this option may be the best course of action for your financial situation.

Could prevent further damage to your credit score.

Most financial experts stress the long-lasting impact bankruptcy will have on your credit profile, particularly the fact that it will linger on your credit report for 10 years. And you will also see your credit score dip once the negative data hits your credit report. But what they don’t mention is the fact that your credit score is more than likely already mangled before your file bankruptcy as a result of late payments, new collection accounts, and charge-offs. So, filing for bankruptcy will, in essence, give you a clean slate and cause the madness to stop. Consequently, you will see your score start to improve (assuming you refrain from any additional debt mismanagement).

Halts collection efforts.

This means that you won’t have to walk around each day with a pit in your stomach in or sweat bullets each time a debt collector calls. When you file bankruptcy, debt collectors can no longer call and pester you about debts you know you can’t afford to pay. Even better, they won’t be able to drag you to court or seek a judgment against you which could possibly lead to wage garnishment.

Gives you peace of mind.

Your mental health is beyond important. And if a high debt loan and constant financial stress are taking you over the edge, chances are your performance at work is plummeting or you find yourself having a difficult time making it through the day. In this case, filing for bankruptcy can help mend your fragile mental state so you can embrace life and focus on what matters most because you are defined by more than your debt load or credit score.

What Are Your Options?

Not all bankruptcy filings are created equal. Here’s what you need to know about each before you file bankruptcy:

Chapter 7 Bankruptcy

Also known as liquidation, Chapter 7 bankruptcy will take your debts off your plate so you no longer owe creditors. But in order for your debts to be discharged, your assets will be liquidated or sold to repay your creditors (even if they only receive a fraction of what you actually owe). Consequently, a major downside is that despite having a clean slate, you may not get to retain assets that you wish to keep in your possession.

According to, the following debts are dischargeable under Chapter 7 Bankruptcy:

  • Credit card debt
  • Government benefit overpayments
  • Medical bills
  • Personal loans
  • Qualifying tax debts
  • Secured debts associated with a surrendered property
  • Select monetary judgments
  • Unpaid rent obligations
  • Utility bills

Chapter 13 Bankruptcy

When you file Chapter 13 bankruptcy, you are agreeing to what’s called “reorganization” which means you’ll repay your debts over the next three to five years. While your debts won’t be completely discharged, you’ll be able to retain possession of your assets. And once the repayment period is up, the remaining amounts that you owe will be discharged. This form of bankruptcy may be the best option if you prefer to keep your assets and have a steady source of income to make monthly payments.

According to, the following debts qualify for cancellation under Chapter 13 Bankruptcy:

  • Credit card debt
  • Debts associated with property damage that resulted from willful or malicious intent
  • Debts associated with nondischargeable tax debt
  • Debts associated with property settlement agreements arising from legal separation or divorce
  • Debts associated with a prior bankruptcy filing that was not approved for discharge
  • HOA or condo fees accrued after the filing date
  • Medical bills
  • Personal loans
  • Qualifying tax debts
  • Retirement account loans
  • Select government fines (excludes penalties derived from criminal activity)
  • Utility bills
  • Select monetary judgments

Is Bankruptcy the Best Choice?

Again, it depends on your financial situation. In other words, there are no one-size fits all answers. But if your debt is getting the best of you, financially and emotionally, or if you’re struggling to make basic ends meet, it may be time to take a hard look at your options and possibly consult a bankruptcy attorney to determine if filing could grant you the relief you need.

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