The last decade has been a financial nightmare for many American families. Two business downturns, the last being especially severe, and continued outsourcing by companies to stay competitive have taken their economic toll on our entire population, some sectors more harshly than others. Disposable income has declined over the period. Home equity values, the traditional “piggy bank” for many seniors for retirement, have plummeted. Credit card debt and student loan balances have soared, yet unemployment stubbornly clings to high levels.
Under these circumstances, it is a miracle when a family is able to balance the household budget and make ends meet from week to week. For many, the reality, however, is a much bleaker picture. Consumer bankruptcies are at a five-year high, yet consumer debt has actually declined since the “Great Recession” hit in 2008, a sign that there has been a modicum of improvement over time. Nevertheless, not everyone has benefited from an improving economy. Many families had also used home equity loans to pay down credit card debt, but falling home prices has removed this option.
For those that have tried to stay afloat by borrowing more, the reality is that the only way out is to increase income to meet steadily increasing monthly debt repayments. When the phones start to ring hourly from debt collectors and their proposals are not viable in the scheme of things, the best course of action may be to file for bankruptcy. Many consumers have chosen this route in recent years, and it has lost much of the social stigma that precluded many in the past from pursuing this option.
Is bankruptcy right for you? First, one needs to realize that filing for bankruptcy is not only a financial decision – it is also a personal and emotional one. Take the time to verify your current financial situation and what may transpire in the near-term future to assess if monthly obligations are considerably more than your present income. Consult with industry experts from debt consolidation companies to evaluate your options and determine if a customized plan can be arranged with your creditors to permit a gradual reversal of your present circumstances.
If it turns out that bankruptcy may offer the relief desired and the opportunity to start again with a clean debt slate, then planning becomes your next step. Timing is of importance, related both to when you incurred the debt you have and when you may receive income. Contrary to what many assume, tax assessments, penalties, and interest cannot be wiped clean. You may be able to negotiate with the tax authorities, but that is another exercise.
Student loans are not eligible either, and alimony and child support payments, depending on the state, may be exempt from dismissal. You will need an experienced attorney to help you with the planning and paperwork. Using “do-it-yourself” instruction guides are not advisable since the courts expect you to know what you are doing. If rules are not followed precisely, you may be in for future surprises.
It is also a fact that your creditworthiness will be dealt a severe blow with bankruptcy, but there are creditors that will take a chance on you after your petition is recorded. Your mailbox will soon receive a host of offers. You will want to take advantage of a few of these in order to re-establish a good payment record going forward.
There are times when bankruptcy can be the best option, but it may not be the path that suits everyone. Consult an expert before exercising your right of choice.