When to File for Bankruptcy

You’re down on your luck and money’s tight. Does that mean you should file for bankruptcy?

In many cases, the answer is “no”. After all, a bankruptcy filing has many implications, such as a precipitous drop in your credit rating and a financial red flag that will remain on your credit report for the next 7 to 10 years.

That being said, there are instances when bankruptcy may be your only resort, such as:

No End in Sight

You’ve just lost your job and you have barely any savings left to cover living expenses. You’re already using your credit card to pay for utilities and food. You can’t pay your taxes, and your home is about to be foreclosed. If your situation is this dire, a bankruptcy filing may be the reprieve you need.

Debt Trumps Assets

Total all the assets you own, from cash savings, properties, to stocks and bonds—anything that adds to your net worth. Then take all your bills and credit statements to see the total amount of debt you owe. If your debt is drastically greater than your assets, consider declaring bankruptcy.

What Debt Do You Have?

Not all debt gets discharged in bankruptcy court. If you think filing for bankruptcy will prevent a bank from foreclosing your home, think again. Only unsecured debt like credit card obligations and medical bills are pardoned by bankruptcy. In other words, the bank can’t force you to pay back the mortgage, but they can reclaim your home instead.