If you are like most people you may be intimidated by the bankruptcy process.
Some find the process to be scary, mostly because of themisinformation associated with the process.
The truth is that bankruptcy is a valuable tool intended to be helpful for those suffering financial hardships.
However, it is not the only option available, nor should it be considered without thorough review of all options.
When It Is Wrong Most people realize they need to do something about their debts when collection letters and phone calls begin.
While this is certainly a time for concern, it doesn't necessarily mean you are ready for bankruptcy.
Do you have the income to pay your debts each month? Are you able to earn additional income? If you answered "Yes", you may be able to develop your own debt relief plan outside of bankruptcy and begin resolving your debts.
Start by looking at your budget and find non-essential expenses to eliminate.
The money saved by eliminating these expenses can then be used to pay off your debts at a faster face.
Have you tried negotiating your debts with creditors? If you answered "No", then this is the best place to start your debt relief efforts.
Debt negotiations can be successful if you have prepared a plan.
Know what you can afford to pay and how your creditor can help you stay on track.
Ask for a reduced monthly payment or interest rate to begin your negotiations.
When It Is Right If you are limited in income, ability to work or are anticipating your financial hardship to persist more than a few months, your situation may warrant a closer look into bankruptcy.
Another cause for concern is threats of repossession or foreclosure.
Secured debts typically carry a higher risk and even missing one payment can put them at risk of liquidation.
If you are under threat of losing your home and have not been able to negotiate with your lender, bankruptcy is your quickest route to halting a foreclosure.
When you file for bankruptcy, all collection efforts like repossession, wage garnishment and foreclosure are stopped until the court finalizes the debt resolution plan.
Even if you are not currently under threat of losing assets, your financial situation may still warrant bankruptcy.
Is your total debt-to-income ratio above 50%? If so, you are sure to experience tough times maintaining your payments.
Do you borrow from one line of credit to pay another? Have you missed three or more payments in thelast six months? If you answered "Yes", your total debt burden may need to be reviewed.
These are all signs of poor financial stability, which can quickly spiral into financial insolvency.