5 Questions to Ask Yourself Before Declaring Bankruptcy

Declaring bankruptcy is a life-changing event with lasting emotional and financial impacts. You find yourself overwhelmed by debt and being harassed by creditors. The only option to get out of the mess, it seems, is bankruptcy. The decision to go bankrupt is not one that should be made quickly. If you're stuck at a financial crossroads and considering bankruptcy to resolve your money troubles, ask yourself the following questions to determine whether or not bankruptcy is your only option.

How much do I owe?

Often when people find themselves in debt, the situation can become so overwhelming that they are afraid to look at the true amount they owe. Take some time to go over your credit card statements, medical bills, loans, and other debts and determine how bad the problem actually is. Until you have a definite dollar amount to work with, you won't be able to see if other debt repayment options are available to you besides bankruptcy.

How much does my budget allow for debt repayment?

Chances are, if you're deep in debt you never really learned to budget your money in the first place. By creating a budget, you can see how much you're actually spending each month compared to how much money you have coming in. If you have $500 a month to spend on facials or new clothes, then you have $500 a month that can go towards your debt. Rather than declaring bankruptcy, you may be able to consider other options such as debt management, debt consolidation, or debt settlement.

What will declaring bankruptcy do to my credit?

Bankruptcy is extremely damaging to your credit. A Chapter 7 bankruptcy will stay on your credit for ten years, while a Chapter 13 bankruptcy will remain for seven years. Declaring bankruptcy will cause you to be denied credit or, if you are able to obtain credit, it will be at a much higher interest rate than the average person might pay. While bankruptcy will alleviate your debt, you will still end up paying for it in the form of deposits and higher interest rates.

What are the nonfinancial impacts of bankruptcy?

Apart from the damage to your credit, bankruptcy can make it more difficult for you to find employment. Employers may view your financial irresponsibility as a general lack of responsibility and may be less inclined to hire you. Bankruptcy makes you look like more of a risk overall.

Am I dealing with the real problem?

While bankruptcy can solve your debt problem, it doesn't address the real issues that caused the debt in the first place. While some bankruptcies are the result of high medical costs or family-related issues, many cases are often the result of poor budgeting habits and overspending. Unless you take the necessary steps to resolve the root of the problem, you will only find yourself back in debt again.

Bankruptcy can help you to eliminate your debts and get a fresh start financially. It can put an end to creditor harassment, potential lawsuits, and the stress that accompanies being deep in debt. Bankruptcy, however, is not the only solution for dealing with debt. There are other ways to deal with your debt if you're willing to take responsibility and face the problem head on.