If you have credit card debt, it can be hard to get it down while interest keeps adding up. You may want to consider bankruptcy, but there are a few things to think about first.
How Large is the Debt?
There are two reasons to think about the size of the debt. First, declaring bankruptcy comes with legal fees, so you don't want to end up paying as much as you already go to get rid of the debt. Second, there is a waiting period before you can declare bankruptcy again. That means you really want to make sure it's worth declaring bankruptcy.
For example, if you suddenly needed a new roof and ended up $10,000 in debt, you have to weigh declaring bankruptcy against the possibility of a $50,000 or $100,000 hospital bill that you won't be able to declare bankruptcy for. You generally want to declare bankruptcy when the debt is too large to take care of some other way.
Is There a Way to Make Your Minimum Payments?
First, are you able to make your minimum payments? If it's hard or you can't, are there discretionary expenses you can cut down on to comfortably make the payments? Bankruptcy works best in situations where you're having trouble paying all of your monthly bills.
You may still consider bankruptcy on a larger debt even if you can make the minimum payments to save on interest. However, in this situation, you need to check whether you'll need to sell assets or enter into a payment plan and how much that will potentially save you.
Has Your Credit Score Gone Down?
Next, has your credit score gone down due to missed or late payments? If so, by how much? Declaring bankruptcy will dramatically lower your credit score and make it hard to get new credit for several years. If you've managed to keep your credit score up, you may not wish to take the credit score hit of declaring bankruptcy.
If your credit score has already gone down, you have much less to lose and much more to gain by declaring bankruptcy. In addition, keep in mind that you will be able to rebuild your credit over time, so your credit score is only one consideration and not the determining factor in whether bankruptcy makes sense for you.
To learn more about when you should declare bankruptcy for credit card debt, talk to a local bankruptcy lawyer today.
Share30 December 2020
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