Bankruptcy by far is a last resort for people whose indebtedness seems insurmountable in spite of their best attempts to pay off the outstanding amounts. Even people with the best intentions to live within their means can find themselves mired in loans. Although poor budgeting and excessive spending contribute to most household financial situations, some people find their budgets seriously strained due to unexpected and prolonged periods of unemployment, divorce, or costly medical expenses. As savings accounts are quickly depleted, credit card balances begin to climb. Eventually, bankruptcy seems to be the only solution.
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If a person is seriously considering this option, he is probably losing sleep over late payments and not answering the phone for fear of speaking with yet another bill collector. He may have reviewed and revised his budget dozens of times and still has no answers. A sense of hopelessness and depression permeates his thoughts and actions as he tries to manage a normal day.
Bankruptcy debt elimination sometimes helps an individual's sense of mental health, even if it isn't necessarily the best course for financial health. Whether this option makes sense for a borrower depends on several factors, including how much he owes, to whom the loan is owed, and what consequences he will face as a result of the choice.
Although no magic formula can determine if this is the best course, answering some questions can help a person make the decision. For example, does the debtor own anything that a creditor can take from him in a judgment? If not, he does not need this type of protection now. Other considerations include age, savings, and retirement accounts, and the number of dependents.
It is important to understand that although most consumer loans and credit card debts can be discharged through bankruptcy debt elimination, some others cannot.
A borrower will still be responsible for paying student loans, alimony, child support, criminal fines, and IRS bills. A lawyer can help the borrower determine which loans can be eliminated and which chapter form of bankruptcy (7 or 13) fits the situation.
Filing still has a negative stigma (though not as strong as in years past), and the legal and financial penalties will follow for several years. Because of these repercussions, a borrower should seriously investigate other options, such as paying off the debts (even if it takes several years), getting a consolidation loan, and using help from a consumer credit counseling agency.
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