Choosing to file for bankruptcy protection is a huge financial decision. When most of us make important life choices, we tend to second-guess ourselves. But, avoiding bankruptcy when you are in need of it can turn into a downward spiral that leads to worse and worse consequences.
If you need more reassurance to take the plunge, any one of these three signs is a sure-fire way to know that bankruptcy is right for you.
Your debt to income ratio is off
You’re likely making more than you owe. However, not all of your income can go toward your debts. You’re more than likely to need at least half of your income to pay for necessities, such as groceries, housing, utilities, etc.
If your debts are more than half of your annual income, you’ll continue to pay for these necessities without being able to correct your debt.
Depending on which type of bankruptcy you are eligible for, you’ll either be allowed to use a payment plan to pay off your debts over 3-5 years or you’ll be able to completely wipe the slate clean, resolving you of all your debts. Both options can help you get back on the track of responsible money management.
Creditors have come for collection
When creditors come knocking to collect your unpaid debts, they may begin by simply notifying you of the situation with a few phone calls, visits or email messages. But, things can get much worse from here.
If you continue not to pay off creditors, they can turn to other means to collect, including:
- Wage garnishments
- A lawsuit
By filing for bankruptcy, you will halt all creditor’s collection efforts, including a lawsuit if they are suing you.
Your recovery plan doesn’t work
Do you see a way to pay off your debts within five years? If so, now determine whether that plan is realistic. To do this, you should make a consistent repayment plan for yourself and test it out over the course of a few weeks.
If the plan isn’t feasible or you’re unable to follow through with it, you may need a different plan. Bankruptcy can offer multiple ways to absolve debts and move forward toward financial security.