When to file for bankruptcy?
Fielding humiliating calls, threats and insults of the lenders can be an unnerving experience for a harassed borrower who is already under a lot of pressure because of his inability to pay off his debts. A knock on the door or a ring on the telephone, and the first thought is that it will be the creditor demanding his money. It is not just the fear of the creditors that makes people file for bankruptcy. Filing bankruptcy not immediately stops all your creditors from harassing you to pay off the debts but it also provides you to make a fresh financial start.
This is not to say that filing for bankruptcy does not have its implications. Before filing for bankruptcy, explore all other options available. For example, you can consider Individual Voluntary Arrangement or a debt management plan. All these options have their pros and cons. Study your current situation and if you feel that given some time you can pay off your debts, you can opt for an IVA. An IVA helps you buy time to pay off your creditors and renegotiate your repayment options, and as it is legally binding by the court, the creditors cannot harass you during the period IVA is in effect. But if you feel that you don't have the required funds to get your business going or that you are far too deep in debt to pull through you can file for bankruptcy.
As said before, bankruptcy gives the debtor a chance to start again. Here are some points that can help you decide if bankruptcy is the right choice for you.
What bankruptcy can do?
- It can eliminate the legal obligation to pay off most of your debts.
- It can stop foreclosure on your house. However, it does not automatically eliminate mortgages and other liens on your property without payment.
- It can prevent debt collection harassment.
- It can prevent repossession of a car or other property, or force the creditor to return property even after it has been repossessed.
- It can also allow you to challenge any fraudulent claims by the creditors who may be trying to collect more than you actually owe.
What bankruptcy cannot do?
It is important to note that bankruptcy can not cure all your financial problems. For example, if you have taken a secured loan against your property, bankruptcy will not help you eliminate the rights of your creditors. You can at the maximum force your creditors to take the payment over a period of time but you cannot keep your collateral unless you keep paying off your debt against it. Bankruptcy will not wipe out money you owe for child support or alimony, fines, and some taxes. Besides, it will not wipe out debts that are not listed in your petition.
Given the above, how to decide when to file for bankruptcy? While there are no hard and fast rules or a perfect formula to answer this, as a genera rule, you should file for bankruptcy only when all other doors are closed. It goes without saying that it is difficult for a person under pressure to take the right decision. If you find yourself in a bad debt situation and don't know how to proceed, you can contact a bankruptcy counselor. Some counselers offer free second opinion on bankruptcy issues. An experienced counselor can study your case, help you to assess the situation dispassionately and guide you regarding the best option.
All said, you must be sure that you have tapped all your financial resources to repay your creditors and consulted all the experts to resolve your repayment problem before you file for bankruptcy.