When Is Bankruptcy The Right Choice For You?

Often times when you think about bankruptcy, negative thoughts come to mind. Yet, bankruptcy is neither a shameful course of action, nor does it reflect on your credit forever.

Any individual or business has a right to file bankruptcy when they feel overwhelmed by their debt problems. There are many advantages to filing, and the decision to proceed is made after careful consideration of your options.

In the short-term, filing for bankruptcy protects you from the continued efforts by creditors to collect what you owe. In the long-term, it can completely eliminate some of your repayment obligations, allowing you to enjoy a fresh financial start.

Here are some things to keep in mind when considering bankruptcy:

1. You have many debts and weak defences for each

   Usually the first course of action is to dispute or settle the debts – if you have just a few. These disputes would then be settled out of court, with bankruptcy being the last option. But if you don’t have a solid defence, it may be best to skip any claims and defences and simply file for bankruptcy.

   Filing for bankruptcy will stop nearly all creditors from taking any collection measures against you. As soon as you file the required paperwork, any wage garnishments and other creditor actions will be stopped.

2. You can permanently erase your legal obligation to pay back many debts

   If many or most of your debts are dischargeable, then you should consider filing for bankruptcy so you can enjoy this benefit after the successful completion of your case. However, some debts, such as student loans, liens associated with secured debts (where you have used collateral to secure the loan and you want to keep the asset), child support, alimony and debts incurred after you filed for bankruptcy cannot be discharged.

   If you have other debts besides these, and they are weighing you down, you should consider filing for bankruptcy.

3. You have an opportunity to “reorganise” and catch up on your debt

   For debts that are not dischargeable, such as mortgages, car loans and other secured debts, filing for bankruptcy can hopefully give you an opportunity to catch up on missed payments by creating a new repayment plan. After you catch up, the loan is reinstated and the creditor treats you as if you were always on track.

4. When you have defaulted multiple times

   If you have defaulted and are behind on bills, your defaults will have affected your credit report, especially if you are continually in a situation where you are unable to pay the amount outstanding amount. This is why if you identify with any of the factors above, you should consider filing for bankruptcy to reduce your financial strain. It is important to remember that most property is protected from sale by bankruptcy “exemptions.”

Although you may be hesitant about filing for bankruptcy as you try other options, delaying could cause you to lose some vital bankruptcy rights. You should seek professional advice from a Licensed Insolvency Trustee about all of your options early if you hope to use the process to save some of your assets and move forward debt free.