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How To Decide Whether And When To File For Bankruptcy

When Might I Consider Filing For Bankruptcy?

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It is preferable to only consider bankruptcy as a last resort. Explore all your other options because of the following reasons:

  • Bankruptcy will affect your credit rating. Bankruptcies stay on your record for ten years. As you are aware, credit is particularly important after a diagnosis. 
  • Bankruptcy will affect your automobile and homeowners' insurance premiums -- perhaps substantially.
  • Bankruptcy may hurt your chances to get a new job, or even cause you to be fired from a current one.

To learn about alternatives to bankruptcy, see Dealing With A Financial Crunch.

It is not advisable to file bankruptcy just to get collection agencies off your back. There may be better ways to deal with them. See How To Deal With Creditors.

Consider filing bankruptcy:

  • In emergency situations, such as a pending eviction from your home or the cut-off of your electrical power in the middle of a Florida summer. Filing for bankruptcy will delay these actions.
  • If there doesn't seem to be a way out of your financial crunch except by using assets that could be protected in bankruptcy. For example, retirement accounts are largely protected in bankruptcy.
  • If you want to save your home. 
    • You are allowed to keep a limited amount of home equity in most states. If your house is worth less than the mortgage plus your home-equity exemption, you can file for Chapter 7 bankruptcy, wipe out your consumer debts and still keep your home, provided that your mortgage payments are up to date.
    • If you are behind on mortgage payments but have a new job, consider a Chapter 13 workout.  There will likely be a three to five year plan for paying your debts, including what you owe for past payments.
  • Elizabeth Warren, the noted economist, recommends: "If you're out of work, try not to go bankrupt until you have  new job and see what's ahead of you."

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