How to Determine If You Need to File Bankruptcy

National nonprofit credit counseling agency Take Charge America helps consumers identify alternative debt relief options as a first step

inbusinessPHX.com

Overwhelming debt can be unbearable, impacting all facets of one’s life. To remedy the situation, many people turn to bankruptcy as a debt relief option.

Bankruptcy is a legal process that eliminates some — or all — of a person’s debt. The two most common types of consumer bankruptcy — Chapter 7 and Chapter 13 — address specific debts such as credit card and medical debt. Student loans, back taxes and child or spousal support payments are not relieved by bankruptcy.

“With either form of bankruptcy, it’s important to consider the impacts to short- and long-term financial goals,” said Amy Robbins, associate director of operations with Take Charge America, a nonprofit credit counseling and debt management agency. “Bankruptcy can devastate your financial outlook for many years to come and should only be used as a last resort. There are several other debt relief options that can be considered first.”

Before considering bankruptcy, Robbins encourages people to think about the following:

Alternative debt relief options: There are options that don’t carry the same long-term repercussions as bankruptcy. Credit counseling is free through nonprofit agencies that help you identify the best relief method for your individual situation. One of those options may be a debt management plan (DMP), which reduces the length of time it takes to pay off debt and may offer additional concessions, such as waived fees and lower interest rates. Debt consolidation may be an option, too, if you have good credit. And, you can ask your creditors directly if they offer hardship programs while you’re experiencing temporary setbacks.
Car and home status: Bankruptcy will stay on your credit report for seven to 10 years. This makes it significantly harder to secure a loan for a home or vehicle and leads to higher interest rates and less favorable terms.
Employment status: Some types of financial, government and managerial jobs will run a credit report on prospective hires. A bankruptcy may raise concerns about financial responsibility and stability, preventing you from attaining certain positions.
Attorney’s fees: Although bankruptcy doesn’t require a lawyer, it’s recommended for best outcomes. It’s important to evaluate whether the cost of legal fees makes sense, or if another debt relief path can be pursued.

Take Charge America provides free and confidential credit counseling to help consumers determine the best debt relief option based on their specific financial situation and goals.