Considerations To Make Before Deciding To Declare Bankruptcy

Posted on: 5 August 2018

When you're feeling in over your head when it comes to debt, it's easy to feel like there's no way out other than bankruptcy. But making the snap judgement to declare bankruptcy is not usually a smart move. Although there are certain financial situations that are best solved by bankruptcy, there are just as many situations that should be dealt with in other ways. It's important to spend time thinking deeply about bankruptcy and whether it's truly right for you. You can do that by exploring these key considerations.

1. What kind of debt do you have?

Contrary to popular belief, declaring bankruptcy does not just free you from all of your debts. There are certain kinds of debt that are not typically discharged with bankruptcy. Student loan debt is a big one. You also cannot discharge tax debt, and typically, back payments for alimony and child support are non-dischargeable too. If you have mostly credit card debt, car debt, and medical debt, then bankruptcy may be a smart choice. On the other hand, if $100,000 in student loan debt is crushing you, then you need to explore other options. 

2. Have you made an effort to formulate a repayment plan?

Declaring bankruptcy will make your life hard, in a financial sense, for several years. It will take you time to rebuild your credit to the point of being able to take out a loan again. Your credit score will plummet, which will make it harder to do everything from rent an apartment to take out a credit card. If there is a way you can instead pay back your debts over a period of 5 or 10 years, that's usually the easiest option. You still won't have a lot of money to spend, but you'll repair your credit faster. Sit down with a financial advisor to see if there is a viable repayment plan that will work for you. Only declare bankruptcy if coming up with such a plan seems impossible.

3. Do you have the support of family and friends?

Declaring bankruptcy can be tough from an emotional standpoint. If you are pretty certain this is the right choice for you, make sure you have friends and family ready to support you along the way. Talk with some people close to you, and tell them what you are going through. The process is easier with someone to lean on!

If you consider the items above and decide to declare bankruptcy, the first step is to call a bankruptcy law attorney in your area.