When you should seriously consider filing

Bankruptcy may seem to some like an answer to prayers and a solution for all financial woes, but like anything else, it’s not for everyone.  During my consultations with prospective clients, it’s not uncommon for me to recommend against filing.  In contrast, there are times I recommend bankruptcy even for those who are current with all of their bills. So what do I look for to make my decision?  In Part 1 of this two part article, I’ll offer some food for thought in responding to the first part of the question (“to file”).

Being current doesn’t necessarily mean all is dandy

Just because you are current with all bills and debts doesn’t mean you shouldn’t file bankruptcy.  I’ve seen many people who are sacrificing their family time, health, even sanity, in a desperate struggle to keep up with their bills.  It’s not uncommon for an individual to work two or three jobs just to make those credit card payments.  No one deserves to live on the edge like that.  It may be time to consider bankruptcy.

Borrowing from Peter to pay Paul

Another phenomenon I frequently encounter is the “borrowing from Peter to pay Paul” syndrome.  Debtors use more and more available credit, then apply for and borrow from new cards to make the minimum payments on the old cards.  This is a losing battle.  It just gets you farther and farther into debt with no way to escape the vicious cycle.  Time to file bankruptcy.

The debt treadmill trap

I also consult with many people who are barely scraping by, paying the creditor minimums, but are never able to pay more.  In this scenario, you will never get out of debt.  The credit card companies love this type of debtor, as they represent a wonderful source of interest for life (often at high rates).  But for the debtor, there’s nothing fun about running on the debt treadmill with no hope of ever getting off.  If you are on that treadmill, paying those minimums month after month for years without a meaningful decline in principal, it may be time to consider bankruptcy.

Social security alone is not going to cut it

I’ve seen another trend that worries me:  people who stop contributing to their 401K’s to increase their net income in order to pay credit card debt. This is problematic for many reasons.  For one thing, we can’t work forever.  Time takes its toll on us, and retirement becomes an eventual necessity for most.  As politicians keep warning, social security was never intended to be the sole means of support for retired individuals.  Neglecting your own retirement savings to keep up with unsecured debts can set you up for life as an elderly person who can’t afford even the basic necessities. Bankruptcy can afford you the opportunity to keep contributing to your retirement savings, thereby avoiding an uncertain future.

This is far from an exhaustive list of indications that you should consider bankruptcy, but it’s a good starting point for analysis.  In Part 2 of this article, I’ll offer some compelling reasons not to file bankruptcy.   Stay tuned.