Should You File for Bankruptcy?

You might be drowning in debt and don’t see any way out. Even though you make decent money, you want to keep your assets and stop the financial bleeding as much as possible. Is it the right time to file for bankruptcy?

Here’s when filing for bankruptcy makes the most sense.

When You’ve Already Tried to Negotiate

You’ve probably had trouble paying your creditors for the last several months. When you first noticed that you were having problems, it’s possible that you picked up the phone and tried to negotiate with your creditors.

Your tried and failed.

If, even after begging and pleading and wheeling and dealing, you’ve still not been able to reach any kind of agreement, then it might be a good idea to look at the benefits of filing for bankruptcy.

Keep in mind, though, if you file for Chapter 7 bankruptcy, you’re probably going to have to sell some of your assets to pay off your creditors. That stands in contrast to Chapter 13 bankruptcy, which is a reorganization.

When Your Net Worth Is Negative

If you’re underwater in terms of net worth, it might be a good idea to file for bankruptcy.

You can calculate your net worth by subtracting the value of your liabilities from the value of your assets. For example, if you own $200,000 in assets and your liabilities (debts) amount to $300,000, then your net worth is $100,000 negative. That is, you own more debt than you do assets.

That’s going to make it tough for you to dig yourself out of the debt hole. As a result, it might be a good idea to talk to a bankruptcy attorney.

When You Want to Keep Your IRA

If you’ve established an IRA account in preparation for your retirement, you might be concerned that you’ll be forced to liquidate that account to pay off your creditors. However, in 2005, the Supreme Court ruled that IRAs are part of exempt assets. As such, a bankruptcy judge can’t force you to liquidate your IRA to pay off your creditors. So, don’t worry about losing your IRA.

When You Don’t Think You Need to Borrow Again

If you’re fairly certain that you’ll never need to borrow money again, at least for a very long time, then you can go ahead and file for bankruptcy.

Keep in mind that a bankruptcy filing appears on your credit record. That means lenders will know that you’ve filed for bankruptcy if you apply for a loan any time in the next few years. It’s not likely that many lenders will be willing to take a risk loaning money to somebody who has filed for bankruptcy. If you are offered a loan with a bankruptcy on your record, then expect to pay extremely high interest rates.

A bankruptcy filing will stay on your record for 7 to 10 years, depending on whether you’ve filed for Chapter 7 bankruptcy (10 years) or Chapter 13 bankruptcy (7 years).

The decision to file for bankruptcy is not an easy one to make. Take some time to think about your current financial situation and the ramifications of bankruptcy and determine if it’s right for you.