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When should you consider bankruptcy?

Imagine yourself in this situation: You have three children (the oldest of which is starting to look at colleges) and you and your spouse both work to support your family. Unexpectedly, your spouse loses their job when the company they work for downsizes.

Like many other Americans, you live paycheck to paycheck, just able to meet the expenses of supporting a family of five.  When one of you is laid off, it’s not long before you are behind on credit cards, car payments and the mortgage.  You start receiving late notices and collection letters.  You keep hoping your spouse will find a new job, but unemployment is set to run out, and your mortgage company has served you with a foreclosure notice.

This scenario is all too common.  A decrease in income due to loss of employment, illness/injury, or divorce can be devastating to financial stability.  I spoke with a couple recently who fell behind on their mortgage payments because the wife lost her job, making it impossible for them to meet all of their expenses.  They were using credit cards at the grocery store and the gas station, and were barely able to make the minimum payments.  They also started falling behind on utilities, car payments and their mortgage.

The couple knew they had to do something, but they kept thinking the wife would get a new job.  By the time the pair worked up the nerve to contact an attorney, the car had been repossessed, the gas company was threatening to turn off the gas, and they had been summoned to court for a foreclosure proceeding.

Bankruptcy could have stopped this couple from the stress of their debt and the fear they might lose their home.  It’s not easy, however, to decide when your fortunes are not going to change; or how much debt is impossible for you to ever pay off.  That’s why it’s critical to consult with an experienced bankruptcy attorney early.  You may have more options if you get help at the outset of debt problems.  Consulting with an attorney doesn’t mean you have to file, it’s just a way to educate yourself so you will know if and when you should file.

A bankruptcy attorney will go through your finances and look at your income, your assets and your debt.  There are several factors to consider when making the decision to file a bankruptcy:

  • Can your income support the amount of debt you have?
  • Is this a temporary situation or is it long-term problem?
  • Are there other ways to deal with your debt?

If the answers to these questions indicate you should file, there are two options: Chapter 7 bankruptcy, which discharges your unsecured debt (credit cards, medical bills, personal loans) within a few months of filing; or Chapter 13 bankruptcy, which requires that you pay back a percentage of your unsecured debt over three to five years.

It’s important to call an attorney sooner rather than later, so that you don’t go through the stress of facing the loss of your home.  If you begin to get calls from debt collectors, or are threatened with foreclosure, repossession, lawsuits or wage garnishment, it’s time to call.  Bankruptcy offers a fresh start for people who have fallen on hard times due to loss of income, medical emergency, or personal/family changes.  An attorney who is experienced in the area of bankruptcy law can help you decide if you should file or not — but the decision is always up to you.