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5 Tell-Tale Signs You Should Consider Filing a Bankruptcy


Stack of overdue bills signaling that a bankruptcy lawyer should be consulted for debt relief

Filing for bankruptcy is a big decision. In 2019, around 469,000 non-business and 14,524 business claims filed under Chapter 7 of the Bankruptcy Code in the U.S. If you too are lagging behind on your bills and can’t make the monthly payments and living expenses by any means, you may have to make this difficult choice.


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Chapter 7 or Chapter 13 bankruptcy allows you to reduce or eliminate most debts, avoid debt collector harassment, and get you past the stress and worry that may be burdening your daily life. Thus, if you have reached a critical point with your finances, it may provide you the much-needed relief.


Here are 5 tell-tale signs that suggest you are at the brink of bankruptcy:


1. You're Already Missing Big Payments


This is usually the first basic sign. If you are finding it difficult to pay bills as they come due, it means that your debt has become excessive. It can be a bigger concern if you can’t make your mortgage or auto-loan payment on time.


Even your pending credit card bills are a litmus test. The debts on credit cards hit a record high of $930 billion in the United States in 2019. If you are one of them this year, bankruptcy may be the right choice for you.


2. You're Getting Harassed/Sued by Debt Collectors


Another big red flag that you can’t miss is when you start getting threatening letters or demanding phone calls from debt collectors. If you continue to ignore them, they might even sue you and get a judgment against you for the unpaid debt. It can make your financial situation much worse.


If you have a lot of unsecured debts such as credit cards, personal loans, and medical bills, you can consider filing for Chapter 7 bankruptcy. It is commonly referred to as a “liquidation plan” since your non-exempt assets get liquidated by the bankruptcy trustee to raise cash and pay off the creditors.


3. You’re Skipping Some Bills Every Month


If you can’t even afford to pay all of your basic bills every month, you shouldn’t continue to skip them and put off your debts. Personal bankruptcy is common and happens for many different reasons. However, one of the biggest factors of falling short of funds is medical debt in the U.S. These bills are important if you have recently got out of a hospital after suffering a major accident or recovering from a serious illness. Filing for bankruptcy will get you out of the vicious circle of increasing debt.


4. You’re Looking at Debt Management Plans


If you have tried and can’t manage your debts, you should try enrolling in a credit-counseling or debt-management plan. But you will need a significant income with valuable property to pay your creditors in an orderly fashion and seek some type of relief. You could also file for bankruptcy under Chapter 13 bankruptcy as it will allow you to pay your discretionary income to creditors throughout the next 3 to 5 years.


5. You’re Thinking of Using Retirement Money to Pay Off Debt


You should not consider paying off high interest debt with your retirement savings. The most important reason for this is because qualified retirement accounts are excluded from a debtor’s bankruptcy estate. This means that the debtor keeps that money. Additionally, you will be charged taxes and penalties for accessing that money. It is rarely a good idea.


Filing for bankruptcy is obviously not a decision to take lightly. That is why you shouldn’t decide it yourself. You can consult with a bankruptcy attorney to get the right information and advice. Then, you can make a smart choice after considering the personal needs of yourself and your family.

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