Deciding Whether or Not to Declare Bankruptcy

Before you declary bankruptcy, you should do plenty of research on what the consequences of your choice will be. As you are deciding whether to declare bankruptcy, you will need to consider whether you qualify for a good bankruptcy program, if your debt truly is insurmountable, what trying to repay the debt under the current terms would mean, and how the bankruptcy may affect your future.

As regulations change, bankruptcy becomes less the “clean slate” that it once was. Instead of being able to wipe away debt, many people now come up with a bankruptcy plan in which they pay off debts slowly over time. The idea is that the creditors still get their money, but they get it more slowly. The debtor can learn to budget better and pay a specific amount to debt each month. Some people still qualify for the old system of ending all debts, but the debtor must meet both income and debt requirements.

Knowing whether or not debt is insurmountable proves challenging. Some people will say that debt at or above a certain percentage of your income is insurmountable, but others argue that as long as you can pay your debt payments and still have enough money for the basics, you should continue to pay your debts.

Sometimes the problem is that you have too many creditors, and all of them want a sizable payment. Even if you have $600 a month to put toward debt, your creditors’ requests could total $750. In this case, bankruptcy will help alleviate the problem because a court officer will work out a sustainable plan for you. You also could write letters to each creditor listing the amounts that you owe to others and giving a schedule for repayment. Begin to repay on this schedule and check in with creditors as needed. Most creditors will agree to your terms, assuming that they will be getting their money eventually.

Another consideration is the length of time that repaying the debt will take. Should you be able to get the debt repaid in one or two years, even living with a modest discretionary income, then you likely can make that situation work whereas debt that will take 10 years of austere living probably is too much. Be honest with yourself about whether you can pay your debt or just don’t want to do so.

The effect of bankruptcy on your life depends on what you intend to do in the future and how soon. If you want to make a large purchase, such as a car or home, within three years, a bankruptcy now may cause you problems. On the other hand, if you will not be trying to get credit for a while and are content to rebuild your credit slowly, then a bankruptcy will be less damaging. The key to deciding whether or not to file bankruptcy is weighing the pros and cons of the situation and making the best decision for your circumstances.