Should I Declare Bankruptcy?

Brent Pittman —  03/28/2012

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)

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Brent is a financial coach and writer looking for the perfect donut. He believes personal finance should be both fun and accessible to anyone willing to learn.