The choice to file a bankruptcy is never easy. You have to consider multiple factors before you file to determine if bankruptcy is the correct solution to your financial woes. If you are feeling buried under the weight of your debts, bankruptcy may present the best way to take care of your debts and regain your economic well-being, but you need to assess some elements that will affect the efficacy of the bankruptcy and your eligibility to file.
First, you need to determine if it makes sense. If you recently graduated from college and are carrying large student loans, are working an entry-level retail job, your loan debt may seem insurmountable. At this point, however, a bankruptcy probably would not solve your financial issues, because most student loans are not dischargeable in bankruptcy, except in extreme situations.
On the other hand, if you have been out of school for years, have had to change jobs or find a new job, have student loans and have run up significant credit card debts, a Chapter 7 bankruptcy may allow you to eliminate much of that type of debt. This can help by enhancing your ability to repay your student loans, because you can focus the amounts that had been devoted to your credit card debt on those debts.
You also need to consider how a bankruptcy will affect your future ability to obtain credit, such as a mortgage. A previous bankruptcy filing will likely increase your cost of a mortgage, but if you have rebuilt your credit after the bankruptcy with good repayment habits, it is unlikely that a bankruptcy five years in the past will prevent your obtaining a mortgage.
A bankruptcy attorney can help you understand the potential impact. You need a holistic approach, looking at what you owe today, how long it will take to pay it off and how much that will cost. You then can compare the potential effects of bankruptcy and compare them with struggling for years to repay your other debts.
Nerdwallet.com, “5 Questions to Ask Before Declaring Bankruptcy,” Anisha Sekar, March 5, 2015
