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How Do You Know When it is the Right Time to File for Bankruptcy?

Understanding when it is appropriate to consider bankruptcy is crucial in times of financial uncertainty. Getting through the complex aspects of personal finance can be challenging, and knowing the signs that indicate the right time to file for bankruptcy is paramount. This article will shed light on key indicators, giving you insights that empower you to make informed decisions and seek professional guidance.

File for a Bankruptcy 

Types of Bankruptcy

There are two common bankruptcy types for individuals—Chapter 7 and Chapter 13. Nearly all debt gets wiped out in Chapter 7, offering a fresh start. On the other hand, Chapter 13 focuses on restructuring debt and creates the possibility for partial repayment. Chapter 7 requires a means test, verifying your inability to repay. Chapter 13 doesn’t require this test.

It is vital to keep in mind that in Chapter 7, not all debt is discharged. Taxes, student loans, secured debt, and familial obligations like child support or alimony cannot be eradicated through bankruptcy. Understanding these distinctions is vital for those considering bankruptcy.

Signs That it is Time to File for Bankruptcy

Bankruptcy is typically a last-resort measure, but specific situations may warrant it as the most viable option. According to our experts at Eric Ollason, Attorney at Law, here are signs indicating it might be time to consider filing for bankruptcy.

Being Sued by Debt Collectors

When you miss payments on a debt, it often goes to a collection agency. If their calls and letters get no response, they might sue you to get payment. Fighting this lawsuit is tough, and if you lose, you could owe more in court costs and attorney fees.

Filing for bankruptcy gives you legal protection. Once you file, the bankruptcy court stops your creditors with an automatic stay. This means no more collection actions until your bankruptcy case is discharged or dismissed. It is a legal shield during a challenging financial time.

You are Dealing With Garnished Wages

When a debt collector takes legal action against you, they might go a step further to get back what you owe them. This could be freezing your bank account or garnishing your wages, depending on your state. Wage garnishment means your employer must withhold a set amount from your paycheck until the debt is settled as ordered by a court.

If your wages are being garnished, filing for bankruptcy can bring relief. The automatic stay will be implemented and put a halt to the wage garnishment. This offers some financial breathing room. It is important to note that this protection doesn’t extend to obligations like child support or alimony, but only for other debts. Either way, it can be a crucial lifeline during tough financial times.

Unable to Pay Your Bills

Life’s unexpected turns, like job loss or sudden illness, can swiftly lead to financial crises. If you’re resorting to credit cards to meet everyday bills, you may find yourself drowning in debt. Even if you manage to cover basic living expenses without relying on cards, handling minimum debt payments might become an overwhelming struggle.

Piling up debt due to spending habits is not always a reason to file for bankruptcy. However, if circumstances beyond your control seriously impact your income, bankruptcy might be a lifeline. Chapter 7, in particular, is crafted for individuals with insufficient income to manage their debt burden. It provides a tailored solution during challenging financial phases.

There is a Risk of Losing Your Home

The risk of losing your home is a critical sign that bankruptcy might be the solution. Even with a decline in foreclosures, many homeowners still struggle with payments. If you are on the brink of foreclosure, filing for bankruptcy can be a lifeline.

In a Chapter 13 bankruptcy, you can retain all your assets and create a plan to catch up on overdue payments. Over a period of three or five years, depending on your income, your case can be discharged. If you have settled the outstanding mortgage balance and continue regular payments, you can prevent foreclosure. Besides, if you are financially overwhelmed with a second mortgage, it is possible to eliminate this debt entirely.

Seek the Opinion and Services of a Professional

While filing for bankruptcy should be a last resort, it can serve as a powerful tool to reset your credit and create room for savings. Chapter 7, despite a means test requirement, wipes out most debts, with exceptions like student loans. Your credit score may rebound within a few years. On the other hand, Chapter 13 allows you to reorganize debts for more manageable payments.

Considering bankruptcy? Explore your options with our experienced bankruptcy attorney in Tucson at Eric Ollason Attorney at Law. Your financial reset could be within reach. Contact us today to discuss your path to a brighter financial future.

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