Declaring Bankruptcy | Debt Reduction Group

Things to know before declaring bankruptcy

Considering that family debt is at an all time high in America, it is not a shock to know that personal bankruptcy is also at an all time high. The Debt Reduction Group believes that Bankruptcy is an absolute last resort to debt problems and like most options, is only suited to certain situations. This article is written with the intention of informing people about bankruptcy, the down side, and as well in what situations it may actually be a feasible option.

Is declaring bankruptcy ever the right thing to do?

Before making any decisions regarding bankruptcy, keep this in mind: don't panic. People with debt loads so extreme that declaring bankruptcy is even a possibility, often want to do whatever they can to get out of debt before examining their situation with a clear mind.

Admittedly, it is difficult to look at things with a clear mind when it is heavily weighted with the stress of debt, but the last thing you want to do is to put yourself in an even worse position. Having as much information as possible is always a key step with any major decision one makes in their life. That information is here, so read on.

The Debt Reduction Group only recommends bankruptcy if the following apply. If you debt load far outweighs your income. If you take the monthly interest rates of your debt and compare it against your family income after taxes, and the result is 25% or more, bankruptcy may be your only solution.

This possibility becomes even more plausible if you are near retirement, so that even if you managed to reduce your debt to a manageable monthly payment, there is no way to pay it off before retirement. That debt stays with you and no amount of pension can comfortably eliminate the debt that could not be paid off with a salary. And keep in mind, the older a person gets, the more chance there is of a costly medical situation arrising suddenly.

Another factor is the number of dependants in your name. If you have three or four dependants, even the best outcome of a reduced debt through negotiation can still be difficult for any family to pay off.

If your situation does not match any of these scenarios, and yours is a matter of defaulted payments, harassing creditors or collection agencies, debt verging on the point of being unmanageable, we highly recommend against declaring bankruptcy. Even if these criteria resemble your situation, we advise that you read on. Even if your situation seems dire, they may be another way out, because frankly, the consequences of declaring bankruptcy may be far worse.

In declaring bankruptcy, there are two forms to choose from. Chapter 13 "consolidation bankruptcy", and chapter 7 "straight bankruptcy".

No matter what your situation, we strongly advise against chapter 13. The typical end result of this option, is that the majority of your debt must be paid within 3-5 years after filing, and it appears of your credit rating. If you had found yourself heading in this direction, STOP! Choose either chapter 7 or read about our debt negotation reduction plan here. Your debt load will be reduced to an amount you can pay, without the credit rating destruction that is bankruptcy.

Chapter 7 bankruptcy is a little more feasible. This form allows for an amount of personal assets to be considered exempt from collectors. Things such as homes, 1 vehicle, clothes and other such necessities that are required for sustaining the ability to work. However, there are down sides. As already mentioned, the bankruptcy appears on your credit rating for about 10 years or more. And if you are in a position that you may ever need to buy a house or car, that bankruptcy will guarantee that your interest rates will be higher than they should be.

For example, if you were to purchase an average priced home ($200,000) with mortgage interest rates of 7%, those rates would be 9% or higher on account of the prior bankruptcy. That extra 2%+ alone, would work out to roughly an extra $200 per month on payments. In many cases, the amount of debt owing prior to the bankruptcy is more than paid with the increased interest. What this means, is that bankruptcy can lead to you paying a higher money in the future than what your debt was at the time of bankruptcy.

If you would like to consider an alternative to declaring bankruptcy, click here.