Individuals who have racked up excess debt often wonder if filing for bankruptcy is the right decision. There are several reasons when it might be ok to take the plunge and file bankruptcy, but remember, making this decision is not without consequences.
WHEN FILING FOR BANKRUPTCY MAKES SENSE
1. YOU HAVE TRIED TO NEGOTIATE
If you have attempted to work a repayment plan, have conducted personal financial management, or negotiate your debt with the official receiver and he hasn’t been budged, wants his full payment, and is not willing to be paid out over time, and you do not have any means to make the payment, you are better off filing for bankruptcy.
2. YOUR LIABILITIES EXCEED YOUR ASSETS
One more reason people file for bankruptcy is that they simply cannot pay their debts because servicing it exceeds their monthly income. Such an individual has no other option but to file for bankruptcy.
3. YOU DON’T SEE YOUR SITUATION IMPROVING IN THE NEAR FUTURE
Look into the future. Maybe you are trapped out and living broke today, perhaps you have a better paying job in the future, or maybe you are due to get some money. If your hardship is temporary, you foresee cash inflow in the near future, you are better off not filing for bankruptcy.
4. CERTAIN DEBT IS NOT DISCHARGEABLE EVEN WHEN YOU FILE FOR BANKRUPTCY
Certain debts such as your tax debt or child support debt does not get discharged even when you file for bankruptcy. You may therefore be better off proposing a plan to pay off these debts, which need to be paid in full within 5 years. If you can’t afford to pay them within 5 years, bankruptcy won’t work for you.
5. YOU DON’T HAVE ENOUGH DEBT
If your debt is too low, you are not eligible to file for bankruptcy. You can pay off small loans without interest through Section 128.
6. If you recently paid some owed debt to relatives or friends or transferred some property without consulting the courts, such transactions can complicate your bankruptcy case and can even cause the receivers of property or money to get involved in your bankruptcy.
CONSEQUENCES OF FILING FOR BANKRUPTCY
1. WONT BE ABLE TO BORROW AGAIN
Another reason why people are hesitant to file is because it makes obtaining further loans extremely difficult for several years. Given the importance of how many people rely on LOC these days, it is hard to imagine how much it would affect you. Banks will be more reluctant to make unsecured loans, and even if they do, they will compensate for increased risk by increasing the interest rate.
2. NO FREE LUNCHES
There are costs associated with bankruptcy. Filing would cost you a couple of hundred bucks, and hiring an attorney to represent you would cost a great deal more.
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