Bankruptcy is said to be a scary proposition. But, how can you tell when it is the right time to file bankruptcy?

Evaluate Your Situation

Bankruptcy is actually when you owe more than you could afford to pay. To know where you are in financial terms, inventory all your liquid assets. Never forget to include the stocks, retirement funds, vehicles, real estate, college savings accounts, and some non-bank account funds. Add up rough estimates for every item. After that, collect and consider adding up your credit statements and bills. If the value of all of your assets is less than the debts you owe, declaring bankruptcy can be your one way out of the sticky financial situation. But, bankruptcy must not be approached casually. Besides, it is not an easy and simple cure for all debts.

Declaring Bankruptcy

You may go bankrupt in one of 2 primary ways. The more typical route is to file for bankruptcy voluntarily and the other way is for the creditors to ask the court to order the person bankrupt. There are other ways to file bankruptcy and each of these has advantages and disadvantages. You might want to consult a lawyer before you proceed so you could determine the right fit for your situation.

Chapter 7 Bankruptcy

There are many reasons why some file Chapter 7 bankruptcy. You are probably not alone, regardless of your reasons are. Some usual reasons for filing bankruptcy are big medical expenses, unemployment, marital issues, and seriously overextended credit. There are times that Chapter 7 is known as the straight bankruptcy as it liquidates your assets to pay your debts. The cash from the assets is distributed to the creditors like credit card companies and banks.

For many, Chapter 7 provides a fresh and quick start. However, it is not for all. Majority of the assets will be taken and sold for repaying creditors. If debtors own companies and some assets they want to keep, Chapter 7 bankruptcy might be a good option.

Chapter 13 Bankruptcy

For those who have properties they like to keep, Chapter 13 bankruptcy is a better choice. It is renowned as a reorganization bankruptcy, which allows people to pay off debts for 3-5 years. For those who have predictable and consistent annual income, Chapter 13 provides a grace period. Debts that remain at the end of the given grace period will be discharged.

If bankruptcy was approved, the creditors should stop contacting the debtor. People who are bankrupt may continue working and pay off their debts for the coming years and keep their possessions.

The Bottom Line

It can be difficult to admit that you require help when getting out of debts or that you cannot do it alone. However, that is the reason why the government has laws on bankruptcy to protect not just the creditors, but you. If you have debt load, it might be time to face some financial facts. Perhaps you have been trying to ignore ringing phones and pile of unpaid bills that will not go away. But, you might be doing yourself a disservice through not filing for bankruptcy. With the right information and good lawyer, filing bankruptcy might provide you the financial footing you require to have a fresh start.

If you want to consider bankruptcy, it is essential to understand every option available for you. Get advice from the experts if possible.