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When Should You Declare Bankruptcy?

To be bankrupt means to be “unable to satisfy any just claims made.” So, when you are unable to resolve claims against you, then you are in fact bankrupt, even if you have not declared bankruptcy. I get lots of consultations from people who are panicking, but are not actually bankrupt. For instance, if you have been sued or have a wage garnishment, that may stink, but it may not mean you are bankrupt. On the other hand, I have had people who are throwing everything (including retirement savings) at their situations, and yet they will still never get out of debt. Don’t do that. Call me first to decide what options you may have. This is my top five list of when you might need to file for bankruptcy:

You are losing your home.
When your home is at stake, you need to consider bankruptcy. In many cases you can save your home. But, even if not, losing your home usually means there are some major financial issues that need to be addressed, and bankruptcy may be needed.

You have more than one years take-home pay in debts (not including your home).
This is simply a rule of thumb I use in quickly assessing how bad off you are. With personal debt on the rise, this may not seem too bad, but trust me – if you can not take a big whack out of your debt even by paying everything you make on it for a year, you are in some deep debt.

Your make all minimum monthly payments, but your debt is still increasing.
Like the one above, this signals that there is something bad brewing. You need to get a hold of this issue now before it gets out of hand.

You have more than one lawsuit or wage garnishment against you.
When you get a court judgment against you, you are starting to lose control of your situation. Bankruptcy can help you get back into control.

Friends or family tell you to consider bankruptcy.
Sometimes we are so close to a situation we cannot see the forest for the trees. When your friends or family suggest it, you should consider it. At least look at it. At least talk to a bankruptcy lawyer like me. I frankly turn more people away from bankruptcy, but you can have the peace of mind that you are touching all your bases.

Remember, this is not an all inclusive list, and you may still not need to file for bankruptcy even where these are present. But you do need to call a lawyer and find out what options you have. Debt is scary, but it is not the end of the story.