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HomeBlog BankruptcyHow To Know If You Should Declare Bankruptcy
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How To Know If You Should Declare Bankruptcy

May 14, 2015 by National Debt Relief

smartphone anxietyMake no mistake about it. Bankruptcy will have a dramatic effect on your life. It will stay in your credit files for 10 years. Many employers now routinely do credit checks of prospective employees and a bankruptcy could dim your chances of getting a good, new job. Your insurance premiums will likely go up after your bankruptcy. And, of course, your credit score will take a very serious hit. How much of a hit it will take will depend on what your credit score was before your bankruptcy. But it could be as many as 200 points. In turn, this could drop you from having “good” credit to “poor” or even “bad” credit.

There are no concrete rules

Unfortunately, there are no concrete rules as to whether you are a good candidate for bankruptcy. Everyone’s different. Whether you decide to file or not will depend partially on facts, somewhat on emotion and to some degree your view of your future. One individual owing $40,000 in debt and can’t sleep at night because of it could see great future opportunities and decide to pay off the debt. But then someone else with the same amount of debt but feels that his or her future looks hopeless could decide to declare bankruptcy.

Understanding the consequences

A bankruptcy is sometimes called the nuclear option because of its consequences. It’s in an area where you should proceed with caution and a complete understanding of what it will mean to your future.

The financial aspects

Of the three elements discussed above – the facts, emotion and your view of the future – the easiest one to quantify is the financial facts. You should sit down, figure out how much you owe, your monthly payments, the percentage of your income that you could devote to your payments and whether you could free up money from your income to make higher payments.

couple going over billsThe emotional

This is much harder to quantify. Could you handle the burden of staying in debt much longer? Are you receiving calls from creditors that are getting to you? Are you having a problem sleeping at night? Are you and your partner or spouse constantly fighting over money? If you file for bankruptcy will you feel like a failure? These are all questions worth answering and if the answer is “yes” to most of them you might be a good candidate for bankruptcy.

Your future

Finally, the third element you need to consider before filing is how you see the future. What are your prospects and could you handle the consequences of a bankruptcy? Having a bankruptcy in your credit file can affect you in getting a promotion, a new job, renting an apartment and your ability to make major purchases. You absolutely need to consider your goals for the next 10 years.

Get counseling first

Credit counseling can be a good way to determine whether or not you’re a candidate for bankruptcy. There is probably a good, nonprofit consumer credit counseling agency in your area but if not there is numerous ones available on the Internet. Just make sure you choose one that either charges nothing or very little for its services – which is typically true of nonprofit credit counseling agencies.

Whether you go to a credit-counseling agency in person or via the Internet you’ll have a credit counselor that will thoroughly review your finances and then make recommendations based on your ability to pay and your goals. Following this meeting you should have a very good understanding of what would be your best course of action given your situation. If you are working with a non-profit counseling agency it’s likely that your counselor will ultimately suggest a debt management plan (DMP) as an alternative to bankruptcy. This is where the two of you develop a plan for paying off your creditors with payments you could afford. Following this, the counselor will likely contact your creditors and attempt to negotiate reductions in your interest rates. He or she will then present your DMP to them for their approval. Assuming that all or most all of them except your DMP you won’t have to pay them anymore. Instead, you will send the credit-counseling agency a check each month and it will take responsibility for paying your creditors. The credit-counseling agency will likely require you to give up all of the credit cards in your DMP and strongly advise you to not take on any new debt until you’ve completed your plan – which typically takes about five years.

If this interests you then here, courtesy of National Debt Relief, is a short video with some good tips for choosing a credit-counseling agency.

Explore options such as debt settlement

There are other alternatives to bankruptcy besides consumer credit counseling. One of the most popular of these is to use a debt settlement company. These companies are generally able to settle debts for about 50% of your balances. They do this by offering lump sum payments to settle your debts. This process can take several years during which time you will be paying the settlement company a set amount each month, which will be deposited into your escrow account. As funds accumulate in your account the debt settlement company will use them to pay for the settlements it’s able to negotiate on your behalf. The debt settlement company will assume full responsibility for interfacing with your lenders and any debt collection agencies, which will relieve you of this burden.

Of course, this will cost you something. Reputable debt settlement firms generally charge a flat fee that can be anywhere from 15% to 25% depending on the size of your debt. However, they should save you enough money to more than offset their fees. In addition, your debts will have been consolidated and that you will have just one payment to make a month to the debt settlement company, which should be considerably less than the sum of the payments you’ve been making to your lenders. While debt settlement will adversely affect your credit score it will not damage it as much as a bankruptcy. Plus, future lenders will see that you did what you could to pay off your debts instead of just walking away from them, as is the case in a bankruptcy.

Try debt negotiation

A third alternative to filing for bankruptcy is one that would have little or no effect on your credit score. It’s contacting your lenders and negotiating concessions that would make it easier for you to repay your debts. For example, you could negotiate a reduction in your interest rates or to have your payments waived for several months, which would give you time to get your debts organized and to begin catching up on your payments. Or you might be able to get your payments converted into a payment plan where you would have a fixed payment each month for a fixed period of time.

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By clicking "Get Free Quote", you agree that the phone number you are providing may be used to contact you by National Debt Relief (including autodialed and prerecorded calls, as well as text/SMS messages). Msg. and data rates apply, and your consent to such contact is not required for purchase.
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Easy National Debt Relief Caller: Austin Transcribed WE 1/17/2021 Austin: Our call may be recorded. What led you to National Debt Relief and why did you choose National Debt Relief over a different company? CARA: Honestly, it was just kind of on a whim. I just saw a commercial, I think, and then looked it up. And we were just tired of living paycheck to paycheck and not feeling like we were getting anywhere with our debt. Austin: What were your thoughts and was wondering as far as like the enrollment process, what process or where are you at this point in the process? CARA: We are almost done. Well, they've paid off almost everything or we've paid off almost everything. We're working on our last credit card. So I think our last payment will be in December, so nearing the end. Austin: Do you remember the name of the negotiator? I'm sure you've probably worked with a couple of people, but what's the name of the negotiator that you worked with? CARA: Well, I didn't really, I guess really work one on one with like one negotiator. I don't think. We just got email saying, "This is where we're at with this. Do you agree?" you know, type situation. Austin: Do you feel that there's anything that maybe the negotiator did well or anything that they could have improved? CARA: No, I don't think so. Nope, I don't think so. We've been happy with everything so far. Austin: Have you seen any positive impacts from working with National Debt Relief, just to kind of notice any changes to your life? CARA: I mean, definitely less stress, and then we've just been able to be better about our spending and our budget and everything. It helped get us on track. Austin: How would you rate your experience with National Debt Relief on a scale of one to five, where five means you would recommend to friends and one means very dissatisfied? CARA: I'd say 5. Austin: Would it be okay if we shared your comments as a review on our public site with a first name and city only, they're for National Debt Relief and to help other consumers make good choices? CARA: Probably not. I live in a smaller area. If anybody were to hop on and say Cara from Beddington, they would probably know. Austin: We can definitely remove that 'cause we very much respect your privacy. So we can either remove the name and just do a ‘C’ or completely remove the city and just do like ‘Cara from the USA’ whatever -- mainly comments than identifying you, I guess would be important. CARA: Yeah, I don't care if you use like my name and just put USA. I just don't -- where I live, it's not a very big area. Austin: I can totally respect that. Not a problem at all. CARA: Yes, we are a little bit of ashamed of having to go this route, but it was what was best for our family at the time. Austin: Would you like us to email you a link to that review whenever it's published? CARA: Yeah, that'd be great. Austin: Our call may have been recorded.

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Cara Waterman
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