This is a very sensitive topic because it involves a decision that cannot be undone. I have personally “beat” bankruptcy, consulted with those contemplating bankruptcy, and helped those recover from bankruptcy. I am not a lawyer and I am not giving legal advice, but sharing my personal opinions of the topic.
In our current economic state, there are many people who have filed or are considering bankruptcy that have never had to in the past. Although I have never filed for bankruptcy myself, I suffered enough personal financial loss in the real estate crisis to justify it, however I never have a feeling of peace when I think about the topic.
Many people realize that soon after filing bankruptcy, they will feel a sense of relief. No more unsecured debts, no more creditors calling, and no more fear of garnished wages. They also realize that this will not allow them to obtain new credit for some time, and in particular, they will not be able to obtain a home mortgage for at least a few years following their bankruptcy. What people don’t often realize is that bankruptcy stays with you forever. You might be thinking that I am wrong because the bankruptcy will come off of your credit within 7 to 10 years. The reason it stay with you forever is because sometimes an application (financial or other) will ask you if you have ever filed for bankruptcy. Some may say that is it is not on your credit anymore, you can answer no but this would constitute fraud. The question is “have you ever filed for bankruptcy?” This is not to condemn anyone for filing for bankruptcy, but to make people aware of how serious it can be. Imagine if you applied for a professional license or a franchise and were turned down because they had a strict “cannot have filed bankruptcy” policy. You need to know all of the facts before you file for bankruptcy and sadly the attorneys who are eager to help people that are down and out part with their money often do not share all of the facts. Oh yeah, and speaking of lawyers, did you know you can actually file for bankruptcy without a lawyer?
That said, there are still those times when filing bankruptcy is a necessity and here are a few situations where it might make sense:
1. To protect your income.
Many people who are on the brink of financial disaster have liquidated their assets and the only thing left for a creditor to go after is their income (by garnishing their wages). Not only will this put you in a bad financial position by taking away your income, but it would also be embarrassing and perhaps could cost you your job if your employer does not want to deal with it.
2. If you are over a certain age.
I am not going to say what that age is, but if you have reached your prime in terms of the ability to earn income and there is no way that your income will ever allow you to pay off your debts, then bankruptcy will very likely take the pressure off and allow you to enjoy life.
3. To avoid foreclosure (maybe).
During the recent past few years, many people have done this without understanding what they were really doing. If you are about to lose your home, you MUST have a plan to rectify this situation because if you don’t, you will end up filing for a bankruptcy and then still having a foreclosure. Bankruptcy does not stop foreclosure and you cannot get rid of a mortgage by filing for bankruptcy. Bankruptcy can delay foreclosure proceedings, but know that you will have to resolve the situation with your mortgage company and this can often mean bringing the mortgage current.
4. If your financial stress is causing you health problems.
Life is too short to allow your mistakes or misfortunes cost you your health.
5. If it is not mathematically possible to repay your debts.
This often happens in the case of a medical crisis where someone ends up with lots and lots of medical bills. Life happens, and it shouldn’t ruin the rest of your life just because you needed some medical care. This is one that I know first hand (we are paying or medical bills all off slowly).
As you can see, I believe there are many valid reasons to file for bankruptcy and I am sure many more than I have listed. My strong advice is to talk to a trusted financial educator prior to talking to an attorney. I don’t believe most attorneys give advice that would results in you shaking their hand and leaving the office.