There is no doubt that deciding whether or not to file bankruptcy is one of the toughest choicest you’ll ever have to make. The consequences, and what they mean to you, ranks up there with getting married, choosing where to live and other deep impact choices. Here are 3 questions that can help you decide whether bankruptcy is the right choice for you. These aren’t the only questions you should ask yourself but they are at the core of making this decision.

How Much Do You Owe?
I constantly get asked what the minimum is to file bankruptcy? There is no minimum. As a rule of thumb I believe that if you have over 12k in debt then bankruptcy is worth considering if you are struggling to pay the minimum amounts due monthly. Use the following calculator to get a rough sense of how many years it will take for you to pay off your debt. http://www.bankrate.com/calculators/credit-cards/credit-card-payoff-calculator.aspx What’s astonishing about seeing these numbers is that 1) this calculation assumes you won’t ever add a penny more of debt and 2) you will always have the cash flow to pay. Unfortunately, unexpected expenses, such as new tires, medical visits, dental procedures and such come up. Job setbacks also come up. Though there is always the possibility you’ll be making more in the future there is also the possibility that your job doesn’t afford you that security. So think about those things; what you owe and the possibility of you really being able to pay that off in the future. If you’re considering bankruptcy my guess is that in the short-term you are feeling the pain of barely being able to (or not even being able to) pay the minimum but is this situation temporary? Consider the long-term financial impact of what you owe.

Do You Have a Post-Bankruptcy Plan?
Sometimes people file bankruptcy and find themselves no better off financially because they don’t have a plan of what to do after the bankruptcy. They think short-term only. For some, they file bankruptcy because they lost their job and so can’t pay the bills. Unfortunately, even after bankruptcy they still don’t have a job and so find themselves being unable to keep the roof over their heads and/or they begin borrowing from people to make ends meet. In other words they are back on the path to debt. Make sure that even after you’ve filed bankruptcy you have a solid plan for getting back up on your feet. Make sure you can afford housing and the basics (i.e. utilities, food, etc.). If you don’t have that certainty I rather have you wait then on filing until you at least have a good idea that bankruptcy is helping you both in the short and long-term.

What Will Bankruptcy Mean For You?
Can you deal with the consequences of bankruptcy? On one hand you’ve obtained as much of a clean slate as possible financially. Its almost like pressing control-alt-delete on your finances. Some people describe it as winning the lottery because one day they have say $35,000 in debt and then one day its discharged. But every action has its consequences. Bankruptcy takes a hit on your credit report (it gets reported there for 10 years) and so, especially the first couple of years after bankruptcy, you will find that it is tougher to get credit or great terms on a loan. This won’t always be the case. Assuming you start rebuilding credit (see my other posts on how to do that) by years four and five you might find yourself having as much credit as other people who have never filed bankruptcy. But the question remains, are you willing to do what it takes to get past the initial consequences of a bankruptcy? Do you have the discipline to not let this be a permanent financial setback? I want my clients to really want to declare bankruptcy. Many need to but unless they really want to some part of them isn’t completely ready for it. They are afraid of the consequences, the stigma, of the pain they associate with it. I want my clients, as scary as it seems at times, to overall have a feeling down deep inside that what they are doing is what’s best for them. Only by seeing bankruptcy in a positive light will you be acting from a place of power and not fear.

I’m sure there are other questions that will help you decide whether this course of action is the best one for you. I’ll be the first one to tell you that bankruptcy isn’t for everyone. I want it to be a way that you obtain financial peace of mind, again. But that can’t happen unless you truly are able to answer the above-questions from a place of power and feel certain in your decision. May you decide in what is in your best interest…

 

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