Declaring bankruptcy vs. gutting
Dear Debt Adviser,
How do you determine if you are a candidate
Bankruptcy is a legal remedy, and as such only an attorney can properly
advise you on the process. However, as far as being a candidate
for the legal process, that is another question. My experience has
been that the decision is based partially on facts, partially on
emotion and partially on a person's view of their future.
As in so much of life, there are no hard and fast
rules to determine if you are a candidate for bankruptcy. Everyone's
financial/emotional/future situation is different and one person
with $40,000 in debt who can sleep at night and sees great future
opportunities for themselves may be able to do what it takes to
pay it off. On the other hand, another person with the same amount
of debt may be bouncing off walls and feel their future is hopeless
under the present set of circumstances and have no other choice
than to declare bankruptcy.
What is most important to keep in mind is that bankruptcy
should be used with caution and a full understanding of the consequences.
I think of it in the same vein as using nuclear weapons. It gets
the job done, but at a potentially high cost, and with some fallout!
Review the information below and then seek professional advice from
a person or organization you trust.
Looking at the three points briefly there are financial,
emotional and future implications to consider. First, do the math
on how much you owe, what are the payments, what income can you
devote to the payments and whether you can free up or get
Second, rate your emotional position. Can you stand
being in debt any longer? Are the creditor calls getting to you?
Can you sleep at night; are you fighting with your spouse?
Third, assess your future prospects and the consequences
of a bankruptcy. Bankruptcy can have an effect on promotions, new
job applications, renting a new apartment, insurance, your ability
or cost to make major purchases. Do you see your life as on an upward
trend or a downward slide? What are you goals for the next two to
One way to assess if you are a candidate for
bankruptcy is to seek credit counseling. A credit counselor will
review your financial situation thoroughly and make recommendations
based on your goals and ability to pay, based on his or her experience
as a certified financial counselor. You should leave the meeting
with a clear understanding of the best course of action for your
situation and an explanation of the alternatives. Clearly, you can't
do this in 20 minutes, so be sure your counselor is willing to spend
however long to takes to get you to a conclusion.
There are many alternatives to bankruptcy, including
settling your debts for less than what is owed, borrowing from a
family member or friend and debt management programs to name just
a few. They are all worth checking out before committing to bring
in the big guns!
A last word, from my own experience. Seeking to solve
problems through the courts rarely produces a satisfying result.
So if you go ahead, expect to get rid of your debts, but not to
walk away feeling like a winner. I encourage you to do your homework
and seek professional advice. Good luck!
The Debt Adviser, Steve Bucci,
is the president of Consumer Credit Counseling Service of Southern
New England. Visit CCCS
for additional debt
advice or click
here to ask a debt question.