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As a financial coach, I speak with a lot of people who ask, “Should I declare bankruptcy?”

Many come with the idea that they are bankrupt and want validation to proceed, when in fact they’ve just lost hope and the will to keep fighting.

First let’s realize that a bankruptcy is a huge decision and I can only give recommendations on what I would do based on the known facts. Second, there are a lot of emotions involved like fear and embarrassment; along with loss of hope and perhaps denial. Third, a consultation with a bankruptcy attorney might be in order to discuss the state specific laws.

I usually try to talk the person off the bankruptcy ledge, but ultimately it is up to the person or couple to decide if a bankruptcy is something to explore.

Bankruptcy is Not A Cure

Bankruptcy is not a cure, but usually a symptom of other financial issues. What can a bankruptcy not do?

  • A bankruptcy can not discharge: student loans, IRS debt, mortgages, criminal restitution, or alimony and child support.
  • A bankruptcy does not deal with the spending habits, lack of communication about money in a marriage, or low income.
  • It is not a quick fix and in the case of a Chapter 13, will be 3-5 years of a repayment plan.

Keep the 4 Walls

When facing a lack of income, mounds of debt, creditors calling, and possible foreclosure or bankruptcy it is important to keep a clear head and focus on the important things.

1. Family, Faith, and Friends are more important than money or material possessions. Stay connected. Love your spouse and kids. Pray. Call your family. Be honest.

2. Keep the 4 Walls:

  • Food
  • Shelter
  • Utilities
  • Basic Transportation
3. Pay Everyone Else Last- Implied in keeping the 4 walls is that you pay everyone last, creditors including no matter how much they scream.

Should I Declare Bankruptcy?

For many people I encourage them to keep fighting until they are forced into bankruptcy by lawsuit.

If you are current with your debt payments, not borrowing anymore, and almost making ends meet then keep fighting. You are close and a slight increase of income would make all the difference in your financial situation.

For situations that are much worse: no to little income for extended amount of time, large unsecured debt, etc…then bankruptcy might be an option, but consult a bankruptcy attorney that will be honest with you.

Keep in mind a bankruptcy attourney only makes money when you declare bankruptcy, so they have a vested interest in mind.

If you’d like to speak with a financial coach in your area that can discuss your specific issues and if bankruptcy is an option click here or if you’d like to speak with me click here.

Photo Credit Joe Gratz (Creative Commons)

Declaring bankruptcy is a very serious and can be life altering. It can be emotionally, spiritually, and physically draining. Draining to point of depression, questioning God, and feeling sick and fatigued.  It puts an atom bomb on your credit. It is serious. So why not declare bankruptcy? It will fix all your problems right? Everyone does it!  It will help you start back at zero right?

Often times bankruptcy is a symptom of larger problems.  It could show that you have lived beyond your means, had a lack of income, were disorganization, or had your priorities mixed-up.  It could possibly mean that you have used leverage (debt) to try to gain wealth and failed.  Bankruptcy does not fix a lack of income or misuse of money.

Many people who think they are bankrupt are not.  If you think you are, please really evaluate your situation and speak with a professional.  Also, keep in mind when speaking with a bankruptcy attorney that they get paid if you declare BK, so get several opinions from someone you can trust.  There may be other options to bankruptcy that you might not have thought of.

If you are facing this situation remember that there is grace, you can learn from your mistakes, and you can help others to avoid the same road you’ve walked.  Be a cure for others facing bankruptcy.