Bills piling up? Five ways to know it's time to consider bankruptcy
Image Source: Flickr CC User Erich Ferdinand
Filing bankruptcy is usually the last thing people in debt want to do – even when their debts are overwhelming. Many of the clients we see at our North Carolina bankruptcy offices feel like they are at the end of their rope because they let things get really bad before coming to see us. Of course, it’s hard to know exactly when it's the perfect time to file bankruptcy, but there are some indicators that can help you decide. Check out these five reasons to consider personal bankruptcy.
#1 You Have Too Much Debt (But How Much Is Too Much?)
No one likes to deal with debt, but if it’s manageable, there’s no reason to call it quits. But if your debt, excluding your car loan and mortgage, is greater than half of a year’s wages, you may be in too deep. Alternately, if there’s no way you can pay off your debt within five years (again excluding car and auto loans), you may be carrying too much debt and need an intervention.
For instance, if you bring home $40k a year and you have $20k in credit card debt plus another $10k in medical bills, that’s 75% of your income owed to debts. That burden may be too much to handle, and you should consider consulting a reputable North Carolina bankruptcy attorney to discuss your options and whether bankruptcy is advisable.
#2 You Are Being Hounded Non-Stop by Debt Collectors
One of the worst things about falling behind on debt is the consequence of debt collector action. Some debt collectors start calling at one day past due and are very aggressive. Once you hit 30 days past due, most creditors will take action to try and convince you to pay up. The later you are on your bills, the more collection activity you can expect.
Many debt collectors cross the line and will harass you by calling non-stop at work, home and on your cell. Some will curse you, threaten you, and tell you they’ll have you arrested (which they can’t actually do), or try other hard-core tactics. When you file bankruptcy, by law, all debt collection activity must stop – and, in many cases, it will be gone for good on any debts discharged in bankruptcy.
#3 You Are Facing Foreclosure, Repossession, or Both
If you are about to lose your home or auto and will soon have no way to get to work and no place to live, bankruptcy can help put a stop to these actions – at least for now. Filing bankruptcy can buy you time to consider your options. If your home mortgage is underwater, you may want to use the stay on foreclosure to save up money and move to a rental home.
Alternately, filing bankruptcy might give you time to refinance your mortgage or do a short sale to get rid of the property. The bottom line is that bankruptcy buys you breathing room and offers options. The same applies to a car loan. You may even be able to lower the principal balance owed on the vehicle as part of your bankruptcy petition.
#4 Your Credit Score Is Tanking
You may have heard doom and gloom things about the impact filing bankruptcy has on your credit score. It’s true that your score will take an initial hit when you file bankruptcy. But if you’re deep in debt, your score is probably already taking a beating. The first time you hit 30 days past due, and then again at 90 days past due (on debts that are reported to credit agencies), your score will plummet. Continuing on with debt you can’t afford will cause your score to drop continually.
However, filing bankruptcy can stop the monthly dings and allow you to get a reset and begin rebuilding your credit. If you can’t afford your debt, your credit cards are maxed and the credit bureaus have on record that you're perpetually late paying bills, your score will not improve.
#5 You Have No Way to Change Things on Your Own
Another factor to weigh when considering filing bankruptcy is whether you can sort out your finances yourself. If you can talk to your creditors, negotiate lower interest rates, and get on a payment plan to dig out of your hole, that can be very productive. However, most people don’t talk to their creditors because they’re scared to, and things only get worse.
Consumer debt management plans are another option but can radically increase, rather than decrease, your amount of debt depending on the agency you use. In contrast, Chapter 7 bankruptcy can wipe out credit card debt, medical bills, personal loans and some past-due taxes. Chapter 13 allows time to catch up on debts and reduce some unsecured debt.
To find out more about the benefits of bankruptcy and whether it’s a fit for you, contact the Law Offices of John T Orcutt for a free North Carolina bankruptcy consultation. Call +1-919-646-2654 now for a free no-obligation debt consultation at one of our convenient locations in Raleigh, Durham, Fayetteville, Wilson, Greensboro, Garner or Wilmington.