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“When should I declare bankruptcy?” This is a question you may have wondered if you have been struggling financially or have experienced a significant life change that has left you in a financial bind.
The average American carries just over 90 thousand dollars in personal debt while earning just over 48 thousand dollars a year. Having debt that is near twice the amount of your annual income can feel like an overwhelming situation to be in. Paying down that amount of debt can seem impossible.
Fortunately, there are solutions for people who feel overwhelmed by debt, one of which is bankruptcy. Filing for bankruptcy is not a decision to be made lightly, as bankruptcy can stay on your financial records for 7-10 years, however, there are certain situations when bankruptcy is the best way to give yourself a fresh start with your finances.
If you are wondering when you should file, here are several signs that bankruptcy is your best option.
- Your Financial Situation Has Changed
If you are struggling financially and also experiencing a sudden change to your finances, such as losing your job, taking a significant pay cut, having an unexpected medical expense, or finalizing a divorce, you might consider filing a claim for bankruptcy.
- You Have Spent All of Your Savings on Monthly Expenses
One reason why you should file for bankruptcy is if you have drained your savings account by paying bills and other monthly expenses. This indicates a cash flow problem that will only worsen without the safety net of savings.
- You Are Applying for Loans to Pay Your Bills
While there are situations when a loan can help you out of a bind, applying for a loan to pay your monthly expenses without a more permanent solution is a sign your finances may need some serious help. If you cannot keep up with your bills, you’ll probably not be able to pay the loan back, resulting in an even tougher financial situation and damaged credit.
- You Are Caught in the Payday Loan Cycle
A clear indication of when should you declare bankruptcy is if you are stuck in the payday loan cycle and cannot see a way out.
Getting one payday loan for an emergency can be helpful, but if you are paying off a loan and requesting another one each paycheck, you are stuck in a cycle that is incredibly harmful to your finances. Getting stuck in this cycle is a sign of significant money problems that will only get worse as time goes by.
- You Are Behind on Your Rent or Mortgage
If you are behind on your rent or mortgage and are close to being evicted, it may be time to file for personal bankruptcy. Losing your home is a traumatic experience, one that affects you financially, emotionally, and will affect your ability to rent or own for many years. Filing for bankruptcy to avoid eviction is a good way to give yourself a second chance.
- Your Expenses Are More Than Your Income
If your expenses are more than your income and you have nothing else to cut from your budget, it may be time to consider bankruptcy. Earning less than you need is the foundation for most of the financial struggles that lead to bankruptcy. If you find yourself in this position without any way to increase your income or decrease your expenses, filing may help.
- You Are Receiving Countless Calls From Creditors
Being harassed by creditors is no fun, especially when they are calling you back-to-back, reminding you of all of the debt you have accrued. Countless calls from creditors is also a sign your finances are badly damaged and need to be repaired as soon as possible.
- Your Mail Is Full of Late Notices
If your mailbox is full of late payment and termination notices, your finances are in a dire state. You’ll know when to declare bankruptcy by how many accounts are past due and if you can afford to make the payments necessary to bring them back to a current status. The pile of notices from creditors is a sure sign it’s time to get some help.
- You Cannot Take Advantage of Other Debt-Reducing Options
If you have tried to negotiate with creditors or have applied for a debt consolidation loan and are getting nowhere, you should consider bankruptcy. At some point, your credit score and history will stand in the way of you being able to take advantage of other debt management options. When this happens, bankruptcy is a viable choice.
- Your Credit Cards Are Maxed Out
If your credit cards are maxed out because you have been using them to pay your bills, its time to ask for help. Maxing out your credit cards without being able to make even the minimum payment is a sign your finances and debt have reached a concerning level.
- You Can’t Think of Another Way Out
Ultimately, filing for bankruptcy should be one of your last options, but it is a viable option to consider. If you are not able to recover financially within a few years, and you are faced with an impossible financial situation, bankruptcy can lift the burden from your shoulders and give you a chance to repair your finances.
When Should I Declare Bankruptcy? The Bottom Line
For those wondering “when should I declare bankruptcy”, this guide should provide clear examples of situations when filing might be your best option.
If your financial situation has changed and you are struggling with no way out, filing for bankruptcy is an option. Endless bill collectors, being stuck in a payday loan cycle, maxing out your credit cards, and draining your savings to pay for essentials is a sure sign you need to take steps to repair your finances. If you are close to losing your home because your income is not enough to live on, it’s important to do something before your situation worsens.
When your financial situation becomes dire, filing can give you a second chance to have a brighter financial future.
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