Serious financial strain is a reality for many families throughout the country. Data from the Federal Reserve shows that more than 25% of adults in the United States are struggling financially and almost 33% state they are doing worse off financially than they were the previous year. Interestingly, almost 75% of adults state they are “doing okay” financially — which could mean they are one surprise bill away from financial strain.
In some cases, those who face financial strain like the data noted above can benefit from bankruptcy. The following will discuss common signs that financial strain is more than just a short-term issue and how bankruptcy can help.
What are common signs that a financial situation warrants bankruptcy?
Not every financial struggle warrants bankruptcy. Temporary financial setbacks generally do not, especially if there is a clear path to recovery. It is important that those who are considering bankruptcy make an informed decision. Signs that indicate bankruptcy may be the right option can include:
- Overwhelming debt: If monthly debt payments exceed income, it may be time to consider bankruptcy. This includes credit card debt, medical bills, and personal loans.
- Collection actions: Persistent calls from creditors or legal actions such as wage garnishments can signal the need for bankruptcy.
- Asset liquidation: Selling assets to pay off debts can be a temporary fix. If this becomes a regular necessity, bankruptcy might be a more sustainable solution.
These indicators suggest that bankruptcy could provide relief by halting collection actions and potentially discharging certain debts.
How can bankruptcy help?
The particulars depend on a number of factors, including which type of bankruptcy you choose. There are different chapters of bankruptcy, with Chapter 7 and Chapter 13 being the most common for individuals. A Chapter 7 bankruptcy can eliminate unsecured debts, offering a clean slate, while a Chapter 13 bankruptcy allows for a structured repayment plan, making debts more manageable. Filing for either type of bankruptcy initiates an automatic stay, which stops most collection activities.
These benefits can provide significant relief, allowing individuals to regain financial stability and focus on rebuilding their credit. Deciding to file for bankruptcy is a significant decision. By recognizing the signs of financial distress and understanding the benefits and limitations of bankruptcy, individuals can make informed choices.