Millions of people file bankruptcy when they are overburdened with debt but are unable to pay them off. There are situations when one has to file bankruptcy to avoid being sued by their creditors. However, bankruptcy has a negative impact on the credit report and score. It remains listed on the credit report for several years and drops an individual's score by 200-250 points. Therefore, financial experts recommend individuals to file bankruptcy only when there are no other options left to pay off debts.
When to file bankruptcy
Bankruptcy is quite a complex matter to deal with. So, financial experts and lawyers advise people to not file bankruptcy hurriedly. If your debt is manageable, then there is no need to file bankruptcy immediately. You should try to make the payments to your creditors on time and find ways for saving money each month. You can utilize the extra dollars to reduce your outstanding balances every month. However, if your financial situation worsens (unable to repay the bills, expenses exceed income, debt is increasing, have no funds, etc.) then you need to start regular budgeting and reduce your expenses.
If you get into deep money problems (lagging behind payments, getting collection calls, have no assets and savings) due to marital separation, job loss, etc. and are unable to manage it, then it's time to consider all the available debt relief options. You should get help of various debt relief programs such as debt consolidation/settlement, credit counseling, etc. If you're still not able to control your finances, then you may consider filing bankruptcy.
You should strongly consider filing bankruptcy when your financial situation has deteriorated to a great extent. For example:
- You're behind your payments for few months,
- Unemployed for several months,
- Use new credit cards to pay other bills,
- Can't pay the debts for next 5 years
- Creditors have filed lawsuits against you.
You should contact a bankruptcy attorney when you decide to file it. The attorney can guide you about the whole bankruptcy process accurately.
Another thing that you should consider before filing bankruptcy is the attorney fees. The bankruptcy attorneys charge high fees for their services. So, it is advisable to check whether you can afford to pay the required fees before filing bankruptcy.
Finally, it is important to remember that bankruptcy must always be the last option. But when you are passing through deep economical difficulties and are not able to get out of it through various financial aid programs, then it’s worth considering.