How to Know it's Time to File Bankruptcy

Bankruptcy can be a very scary prospect. In fact, the word itself sounds very ominous. Unfortunately, the media does not help this, as it throws around stories of huge businesses going under from bankruptcy. However, bankruptcy does not need to be something you avoid thinking about. If you feel that you are close to bankruptcy, but do not know if it is best to proceed with filing for one then there a few things you should take into consideration.

Questions to Ask Yourself

There are a few questions that you need to think about before deciding to declare bankruptcy. First of all, are you able to make all of your minimum credit card payments? If you are able to do this then perhaps bankruptcy isn't the answer. Are bill collectors harassing you? Do you use a credit card in order to pay for essential items? Have you looked at alternatives such as debt consolidation?

Understand Your Situation

At the end of day declaring bankruptcy is essentially stating that you owe more money than you are able to pay. In order to know if this is the case you need to thoroughly understand your financial situation. To do this, it is recommended that you take an inventory of your liquid assets. Include in this inventory your stocks, retirement funds, real estate, bonds, college savings accounts, account funds, and college savings accounts. Try to come up with an estimate of each item. Once this is done you must then add up all of your credit statements and bills. If you have fewer assets then you do debt then declaring bankruptcy may be your best way to get out of a very sticky financial situation. Nevertheless, you should not approach bankruptcy light handedly, as it is not a simple fix-it for a huge debt problem.

How Do You Declare Bankruptcy?

There are two ways to go about becoming bankruptcy. The first is to voluntarily file, which is a much more common route to take. The second is when creditors take you to court. Chances are you are considering declaring bankruptcy yourself, and not letting the courts force you into it. If this is the case then there are several ways to declare.

Chapter 7 Bankruptcy

This is a very popular method of declaring bankruptcy. There are many reasons why people choose to declare this type of bankruptcy including overextended credit, large medical bills, marital problems and unemployment. This type of bankruptcy is called a straight bankruptcy, as it will liquidate all of your assets in order to pay as much of the money you owe as possible. You will have this on your credit report for 10-years; however this does not mean you will not be able to purchase items with credit after declaring. This can be a clean start for some people, but not for everyone, as you will have to say goodbye to almost all of your assets.

Chapter 13 Bankruptcy

If you have some assets that you want to keep then a chapter 13 bankruptcy may be your better option. This type of bankruptcy allows people to pay off their debt over a period of between 3 to 5 years. This is for people who have a consistent income.

Scary but Necessary

It can be difficult admitting that you need help getting your way out of debt. However, your best option may be to receive help from bankruptcy laws in order to get out of a huge debt-loud that is unmanageable. Keep in mind that with the right information and a lawyer, bankruptcy can give you the fresh start that you need.