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When to File for Bankruptcy: A Detailed Guide

You work hard to make ends meet, but sometimes it’s just not enough. You’re not alone. In fact, about 78 percent of workers live paycheck to paycheck, rarely able to set aside money for savings.

When times are tough or hours at work get cut, finding ways to pay your bills can feel almost impossible. It’s normal to turn to credit cards and personal loans to help cover your regular expenses. However, when you do, you risk getting so far into debt that you can’t find a way out.

If you’re struggling to get out of debt, bankruptcy may be your best option. Knowing when to file for bankruptcy is the first step in the process. Here’s what you need to know.

You’ve Blown Through Your Savings

When finances get tight, you often have to use your savings to make ends meet. While this is fine in the short-term, it can be a serious drain in the long-run.

Your savings should be a financial cushion to help you stay out of debt or allow you to buy those luxuries you enjoy. If you’ve depleted them trying to pay your bills and keep food on the table and can’t find a way to rebuild them, it’s time to declare bankruptcy.

However, if you have some savings left or can start rebuilding your savings in a matter of weeks, it’s best to wait and try to repair your finances on your own through tough budgeting and determination.

Ideally, you shouldn’t have to put your regular expenses on credit cards or use loans to make your rent or mortgage payments. If you are, it’s a surefire sign that the time is right to file for bankruptcy.

Creditors Keep Coming After You

If you’ve started using your credit cards to pay for daily necessities and can’t afford to make payments on what you owe, creditors will start calling. Once they start, they won’t stop until you start settling your debts.

When you’re already maxing out your cards to keep a roof over your head, you don’t have the luxury of being able to repay what you owe. While some creditors will work with you to create an affordable repayment plan, others won’t.

If you find yourself battling it out with your creditors or dodging phone calls because you don’t have an answer for them, bankruptcy can help. Filing will let you escape those debts and start over fresh.

Your Income Isn’t Making a Dent

There are times when the income you earn isn’t going to be enough to help you cover your regular expenses. If you’ve taken a second job, started working more hours, or done everything you can to increase the amount of money you bring in, it may still not be enough.

If your income is too low to help you get rid of your debts, filing for personal bankruptcy may be your best option.

It won’t increase the amount of income you bring in. However, it will lower or get rid of your debts that keep you from being able to use what you earn to create a better life for your family.

Debt-Relief Options Haven’t Helped

Before you file for bankruptcy, it’s always a good idea to look into different debt-relief and consolidation options. These programs can help lower your monthly payments to more manageable levels so you can still afford your bills without increasing your debt.

While they work for many people, they’re not the ideal solution for everyone. If you haven’t been able to find a program that works for you or didn’t qualify for debt relief, declaring bankruptcy can be your next step.

Debt Is Making You Lose Sleep

Think about how often you have trouble sleeping. Is it because you’re just awake or are your thoughts constantly turning to money? If you’re worrying about debt so much that it’s making you lose sleep, it’s time to file bankruptcy.

Losing sleep isn’t something that will just leave you reaching for more coffee in the morning. It can have major effects on the quality of your life. Work will become harder, your health can suffer, and you’ll find it even more difficult to get out of debt in the first place.

Filing for bankruptcy can help you regain control over your health and let your sleep cycles get back to normal.

What Happens When You Declare Bankruptcy

Declaring bankruptcy is a way to declare your inability to repay your debts due to financial hardship. When you file, you’ll end up going to court to explain your situation and reach a settlement with the government and your creditors.

The bankruptcy will erase most private debt like credit cards, personal loans, mortgage debt, and medical expenses. However, student debt, child support payments, back taxes, and other similar expenses won’t get waived.

Once everything gets settled, you’ll be able to move on with your life and can rebuild a more stable financial future.

There Are Some Downsides

Unfortunately, there are a few negative consequences of declaring bankruptcy. After you file, your credit score will drop and the bankruptcy itself will get added to your credit report. This will make it harder to take out personal loans in the future.

Depending on the type of bankruptcy you file, you may lose certain types of property. Your bankruptcy attorney will be able to help you figure out which options are best for your financial situation.

Knowing When to File for Bankruptcy Is Key

Ultimately, filing for bankruptcy is an easy way to get out from under the thumb of your creditors, but it’s not right for everyone. If you feel that your debt levels are overwhelming and can’t see a way out, filing for bankruptcy is likely in your best interest.

If you’re just starting to wonder when to file for bankruptcy and can look into other ways to deal with your debt, do so first.

Bankruptcy should be a last-ditch effort to get rid of debt. If you can find ways to lower what you owe or break things up into more affordable payments, your finances will improve without the hit to your credit score.

For more helpful tips and insight into getting your finances back on track, check out our latest posts.

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