Decisions, Decisions. Bankruptcy or Debt Settlement?

If you have read my blog at all you have likely read my mantra that “no body wants to file for bankruptcy”.  Sometimes it is just flat out necessary.  But how do you know if bankruptcy is the right choice?

On more than one occasion I have met with families where they are bound and determined to file for bankruptcy when bankruptcy clearly is not a good option.  The opposite is also true.  Some people want to avoid bankruptcy at all costs when in reality there isn’t any other option for dealing with their debt problems.

So how do you know which way to go?  Here are three  factors that should go into your bankruptcy decision making process:

Do You Have the Ability to Pay Your Debts?

Most of us like to think that if we are given enough time that we could pay all we owe in full.  Sometimes this isn’t reality.  When deciding  between bankruptcy and debt settlement you need to take a real hard look at your current financial situation – including your income, your projected income in the near future, and the total amount of debt that you are carrying.

If you have been barely scraping by, paying only the minimum payment for years, there is a good chance that you don’t have the ability to actually pay your debts.  Look to your total debt as compared to your income.  High debt and low income is not a recipe for a successful debt settlement program.

On the other hand, if, after taking that hard look at your budget you realize that there are areas you could cut back, increase your payments on your debts, and be out of debt in the next few years, then maybe we need to give debt settlement a second look.

Likewise, if you have a lump sum of money that you can use to offer your creditors an immediate settlement then bankruptcy may not be the best option.

This is a hard exercise to do.  None of us wants to believe that we can’t dig out of the hole that we are in.  But many times our plan to get out of debt are just wishful thinking.

How Many Creditors Do You Have?

Another factor that will go into the bankruptcy v. debt settlement decision is the total number of creditors you have.  The reason why this is significant is because when attempting debt settlement it is important to try and get all your creditors on board.  If you have 10 credit cards and 5 agree to settle and the other 5 tell you to pound sand, that doesn’t really get you anywhere.

The fewer creditors you have the more likely it is that you will be able to achieve a successful debt settlement.  If, however, you are dealing with credit cards, medical bills, etc. that number in the dozens, bankruptcy may be the better option on achieving complete resolution of all your debts  at once.

Are You Being Sued or are Your Wages Being Garnished?

Lawsuits and garnishments have a way of making things become very real.  Before you get sued by your creditors typically it is pretty easy to avoid the situation.  Sure, they may call on the phone, but you can ignore that or even block their calls.

But once that lawsuit shows up on your door or when you lay your eyes on that first garnished paycheck you realize that they aren’t playing nice anymore.

If you are facing a lawsuit or if a judgment has already been entered and your wages are being garnished you have lost much of the leverage you had prior to the creditor taking these steps.  Not only that but any further delay is going to cost you serious money.

With that in mind, most often people who are dealing with legal issues end up filing bankruptcy.  As soon as the bankruptcy is filed the bankruptcy court will issue an order that will make all the pain of debt collection lawsuits and wage garnishments go away.

Regardless of which path you take, if you are dealing with debt problems – or maybe more appropriately not dealing with your debt problem – it is time to take action.  Educate yourself on both processes.  Seek out a consultation.  Most bankruptcy attorneys will meet with you for free.  And then act.