To some people, bankruptcy seems like the last possible option. They prefer to take responsibility for their financial obligation instead of seeking relief through bankruptcy. While that commitment to fulfilling personal responsibilities is admirable, it may leave people dealing with financial pressure for years unnecessarily.
There are certain circumstances in which bankruptcy is likely the best solution for someone’s financial hardship. Anyone who has experienced one of the three issues below may need to consider bankruptcy as a means of improving their circumstances and preparing for a better future. What situations make bankruptcy a realistic solution?
1. Pending creditor lawsuits
Frequently, people keep trying to pay their debts until doing so proves impossible. Once they start missing payments on credit card balances or major medical debts, they are vulnerable to creditor litigation.
People can be at risk of asset forfeiture and wage garnishments if they do not respond proactively to a creditor lawsuit. The automatic stay provided by a bankruptcy filing can result in the dismissal of pending lawsuits and can help people regain control over their finances.
2. Slowly increasing account balances
Some people have one or two major debts that they have to address. Those debts could include hospital costs after an unexpected medical emergency or similar obligations. However, many people find that their debts slowly accumulate.
They may have more expenses each month than income, and so the balance due on their credit cards may increase slowly but surely. Eventually, they may only be able to afford minimum payments and may have limited credit available.
Those with multiple maxed-out lines of credit who cannot afford to pay down their debt may need to consider ways to eliminate some of that debt. A successful bankruptcy leads to a discharge, which can help people rebalance their budgets.
3. Concerns about secured assets
Sometimes, people have fallen so far behind financially that they are at risk of foreclosure. They may have already missed several mortgage payments and cannot catch up without help.
Other times, they may worry about losing their vehicle to repossession because they have missed a car payment. Bankruptcy can halt all collection activity. If the filing is successful, the discharge of unsecured debts can make it easier for people to catch up on their payments for secured debts, such as mortgages and car loans.
Taking action by filing bankruptcy before financial issues spiral out of control can help people improve their circumstances. A successful bankruptcy filing can help prevent the most extreme debt collection efforts and can help eliminate some of the financial obligations that put pressure on a household’s budget.