Financial problems can happen for many reasons, including job loss, medical expenses, divorce, unexpected emergencies, or a significant drop in income. For some people, debt eventually becomes difficult or impossible to manage through ordinary repayment.
Nobody wants to admit it when they are having financial troubles, but taking action as soon as possible can help prevent bigger issues down the road, like bankruptcy. Bankruptcy can be helpful in fixing your financial problems, but it can affect your credit for a long time. You will be unable to buy a car or house for seven years or longer, which can be inconvenient.
However, bankruptcy can also be a lifesaver. You may be able to save your home or car. You can avoid foreclosure and wage garnishment. You can also learn better money management habits to prevent another bankruptcy in the future.
With that said, it is always a good idea to try other options first. Some creditors will consider reduced interest rates and payment plans if you explain your financial situation. They may even allow you to delay payments. Some options include debt consolidation and credit card negotiation.
However, these options do not always work, so bankruptcy is often the best solution. But knowing when to file is not easy. Here are some signs that you should contact a bankruptcy lawyer and start the process.
You Are Using Credit Cards to Pay for Basic Expenses
Relying on credit cards for groceries, utilities, housing costs, or other necessities can be a warning sign that your income is no longer sufficient to cover your regular expenses.
Using credit temporarily is not necessarily a problem. The concern arises when balances continue increasing because there is not enough money available to pay them down.
You Can Only Afford Minimum Payments
Making minimum credit card payments may keep an account current, but it can take years to eliminate the balance, particularly when interest rates are high.
If most of your monthly payment is going toward interest rather than reducing the principal, your debt may continue to be difficult to manage.
Debt Collectors are Contacting You
Frequent collection calls, letters, and other attempts to collect unpaid debts can indicate that accounts have become seriously delinquent.
In some circumstances, creditors may also pursue legal action. A lawsuit, judgment, wage garnishment, or bank-account levy can make an already difficult financial situation considerably more complicated.
Your Debts Are Growing Faster Than You Can Pay Them
Another warning sign is when your total debt continues increasing despite making regular payments.
This can happen when interest, penalties, and new charges outweigh the amount being paid toward the underlying balances. Creating a realistic budget can help determine whether repayment is actually possible.
You Are Considering Using One Debt to Pay Another
Taking out a new loan or using one credit card to make payments on another can create a cycle of debt.
Debt consolidation may be appropriate in some situations, but repeatedly borrowing money simply to stay current can indicate that the underlying financial problem has not been resolved.
You Are Facing Foreclosure or Repossession
Falling behind on mortgage or vehicle payments can put important assets at risk.
Bankruptcy may provide certain protections or repayment options depending on the circumstances and the type of bankruptcy involved. However, bankruptcy does not automatically eliminate every secured debt or guarantee that someone can keep a particular property.
Anyone facing an imminent foreclosure or repossession should consider getting legal advice promptly because deadlines may be important.
Your Wages or Bank Account are Being Garnished
A creditor that obtains a judgment may have collection options available under applicable state law, including wage garnishment or other enforcement measures.
If a substantial portion of income is being diverted to satisfy judgments, bankruptcy may be one of the options worth investigating.
You Have No Realistic Way to Repay Your Debts
Perhaps the most important question is whether your financial situation can realistically improve without bankruptcy.
If you have enough income to repay debts through budgeting, negotiation, refinancing, or another repayment strategy, you may have alternatives worth considering. On the other hand, someone whose debts substantially exceed available income and assets may need to examine whether bankruptcy or another form of debt relief is appropriate.
FAQs
Q: How do I know if my debt is too much to handle?
A: There is no single dollar amount that determines whether debt is unmanageable. Consider whether you can make meaningful progress toward paying your debts while still covering necessities such as housing, food, utilities, transportation, and medical expenses.
Q: Should I stop paying my bills if I am considering bankruptcy?
A: Not necessarily. Whether to continue making particular payments depends on the type of debt, your circumstances, and your bankruptcy options. Anyone considering bankruptcy should obtain individualized legal advice before deliberately stopping payments.
Q: Can bankruptcy stop creditor collection efforts?
A: Filing bankruptcy generally triggers an automatic stay that can temporarily stop many collection actions. However, there are exceptions, and the automatic stay does not necessarily prevent every type of collection activity.
Q: Does bankruptcy eliminate all debt?
A: No. Certain debts may be nondischargeable or subject to special treatment under bankruptcy law. Examples can include certain tax obligations, some student loans, domestic support obligations, and debts arising from certain types of misconduct.
Q: Will I lose my home or car if I file bankruptcy?
A: Not necessarily. The outcome depends on factors including the type of bankruptcy, the amount of equity in the property, applicable exemptions, and whether payments are current. Secured creditors may retain rights in collateral even after a bankruptcy filing.
Contact Us Today
Making the decision to file for bankruptcy is never an easy choice. There are always pros and cons to consider, but bankruptcy can mean financial freedom.
Finances can be tricky. The South Carolina bankruptcy lawyers at Benjamin R. Matthews and Associates, LLC, are here to provide you with trusted legal advice as soon as possible. Schedule a consultation today by filling out the online form or calling (803) 219-8612.