Dealing with debt can be a stressful and daunting experience. Some people manage to successfully emerge from debt on their own. However, some debt situations can be impossible to manage, in which case you may consider filing for bankruptcy.
While bankruptcy is not for everyone with a debt problem, there are clear signs that indicate that you may need the help of the bankruptcy process to help restore your financial situation.
You have excess debt
Consumer debt can take many forms, including credit cards, medical bills and personal loans. If this debt adds up to more than half of your income, paying off these amounts can be an uphill battle that may take you five years or longer, even with extreme cost-cutting measures.
You struggle to pay for necessities
Money going toward your debt might take away from expendable purchases, but you should not consume so much that you struggle to afford essential expenses like food, shelter and retirement contributions. Some people even forego buying medicine to cover their bills.
You feel tempted to sell assets
Some people try to pay off their debts by withdrawing money from retirement accounts or selling off assets. This can do more harm than good in the long run. You might end up having to file bankruptcy anyway and lack valuables or accounts you could have held on to in bankruptcy. Going for bankruptcy earlier can allow you to protect certain assets and ensure you have a financial foundation to build upon going forward.
Your credit has taken a hit
Many people assume that bankruptcy will severely damage their credit. However, your credit may already be in poor shape due to missed payments or collections. At least by going through bankruptcy to erase your debt, your credit score can start to recover, often within a year.
Bankruptcy is not the end of the world. In fact, it can be a pathway to a brighter financial future. By understanding situations where it makes the most sense, you can make an informed decision that puts your well-being first.