Filing for bankruptcy is among the easiest financial decisions you can make. This is because apart from being associated with a significant amount of stigma, it comes with several consequences. It costs money, takes time, and affects your credit one way or another. This is not to forget that after filing for bankruptcy, your reputation may suffer a dent, and most lenders will always look away when you approach them for a loan.
But on the brighter side, it could be your best route out of the sinking ship of debt and financial difficulties. Bankruptcy essentially exists to provide relief for individuals who are unable to get out of debt.
All the same, it is not a decision to be taken lightly, which is why we have prepared this piece to help you make an informed choice. One has to weigh their options carefully before deciding whether or not to file for bankruptcy. With this having been said, here are 7 situations when filing for bankruptcy is a good idea.
1. Drowning In Debt after Loss of Income
When you lose income due to unemployment or other reasons, it is possible to face a cascade of financial problems. You stay out of a job for an extended duration, and the debts pile up unimaginably, even unemployment compensation may not appear to help.
Before you know it, you are looking at bigger issues like eviction, foreclosures, harassment calls from creditors, and possibly lawsuits. In such times of financial distress, Tristan Brown and the legal team from the TL Brown Law Firm say that bankruptcy can provide you with the much-needed relief. With legal expertise in your corner, you can take a breath from creditor harassment and collection calls as you prepare to file for bankruptcy. You also don’t have to lose your essential property to your creditors.
2. When Overwhelmed By Small Business Debts
Actually, bankruptcy is a better and more appropriate debt relief option for entrepreneurs than for individuals. Well, it is not unheard of for businesses to run into debt difficulties from time to time. However, sometimes the burden gets too heavy to bear, and bankruptcy becomes the best way out.
When overwhelmed by business debts, bankruptcy chapter 7 is often the simplest option. However, this comes with the risk of losing some of your assets, which are sold off by trustees to pay off your creditors as you close your business down. Any unsecured debts that remain could be discharged. Bankruptcy Chapter 13 is another alternative, which offers the convenience of restructuring the debt. This involves coming up with a more favorable repayment plan, so your business can pay its creditors between 3 and 5 years.
3. Catastrophic Medical Issues
Major health problems and chronic illnesses can be financially draining, forcing them into bankruptcy. If you or a family member suffers a tragic accident or a life-threatening illness, all your proceeds could be directed to paying medical bills and other costs associated with the condition. You may not have enough to provide the needed care and still manage to meet other financial obligations… which only means one thing. Debts can be unmanageable, and filing for bankruptcy could be the only realistic way out of the sinking sand.
4. You Are Facing a Major Lawsuit
Without sugar-coating things, lawsuits don’t come cheap. Even if you are an ordinary citizen earning an average income, you could be sued for insurmountable sums of money. But what if you don’t carry liability insurance? Would you rather face a jail term? In some of these cases, filing for bankruptcy could be the only available option. Some people are not even able to pay a defense lawyer for such suits, let alone paying the judgment.
5. When Facing a Divorced
Divorce is the last thing most of us want to imagine. Forget the emotional toll it can have on you, a divorce can bring you to your knees financially. Ironically, money problems are a huge contributing factor to divorce in the first place, but partners still fight over money upon separation, especially if they took debts together. Both partners have to pay legal fees for representation in court, which only adds to the financial burden. When dealing with such a scenario and you find it burdensome, filing for bankruptcy could be a good idea.
6. Difficulty Paying Student Debt
Well, this is a less common scenario, but it works for some people. To make it clear, Chapter 7 bankruptcy may not help you in any way to escape from student loan debt. However, Chapter 13 can be a considerable option when you are completely unable to pay student loan debt.
The slight drawback is that it is a complicated process since you have to really convince the court that you can’t manage to pay your debt based on undue hardship. For instance, your debts may be discharged if you acquired a disability after a long record of timely payments. In this case, it is all about proving undue hardship and good intentions.
7. You Suffered Major Catastrophes
Life is not always a bed of roses. Sometimes the trouble may come from different directions, hitting you all at once left, right, and center. Take for instance; you are a single mom receiving child support but all of a sudden, the co-parent suffers a coma and is no longer able to provide.
A month after that, you lose your job or get threatened with wage garnishment. After two months, your landlord threatens to evict you if you don’t clear your rent dues. In such a case where the blows keep coming, you can’t help but ask for help, and bankruptcy becomes an option.
Bankruptcy can help get you out of the mud in so many scenarios of financial turmoil. You just have to be keen enough to know if bankruptcy is the best option at the moment. The above are just a few circumstances where filing for bankruptcy can be an ideal move to get financial relief from debt.