When do you need a bankruptcy?

Signs you may need to file bankruptcy. 

Many people spend years struggling to pay debts before they decide to file bankruptcy. Bankruptcy is what people think of as a last resort only after they have used up all their retirement and savings to pay off debt. While we understand people are hesitant to take this step, this article may provide some reasons why you should file sooner rather than later. We often see people that have depleted their retirement savings trying to pay down debt, when if they had filed a year or two before, they would be debt free and still have their retirement savings.  

Check if any of these situations apply to you—if they do keep reading 

  • Cannot pay monthly bills. 

  • You can only afford the minimum payment on debts. 

  • You are being sued. 

  • Your wages are being garnished. 

  • You are having to resort to payday lenders to cover your bills. 

  • You are getting collection calls from creditors. 

  • You have no savings or retirement. 

  • You suffer from stress caused by debt. 

Think about your overall debt load and ask yourself if you can realistically pay it off in a reasonable amount of time. 

If you answered yes to any of the questions above, those are signs that you might be in financial trouble. You will want to look over your income, expenses, and total debt load to determine if you can benefit from bankruptcy.  

Start with writing down all the debt amounts you owe and the interest rate. If you have a recent credit report, you can reference this for a list of your creditors and the amounts you owe. Group the debts into secured and unsecured debts. A secured debt would be a mortgage or car loan. Unsecured debts would be credit cards, medical bills, or personal loans. Plug the unsecured debt numbers into any debt payoff calculator. This one works well because it allows you to input multiple debts and interest rates.  

You will then want to make a monthly budget that includes your income and expenses. A good way to analyze the information is If the monthly payment amount calculated using the link above works within your budget and you are comfortable with the repayment length, then you may not need to file bankruptcy. Just because you can make the minimum payment doesn’t mean you are financially stable. You should really ask yourself if you want to spend that much more time in debt. If many of the debts are unsecured debts and repayment is high or lengthy, speak with one of our attorneys to discuss if filing for bankruptcy will improve your situation.  

What are the benefits of filing bankruptcy? 

If you file bankruptcy, you will have less debt, sometimes even NO DEBT! You can get out of the monthly minimum payment trap and have more money available for living and for saving for retirement.  

Say you have $20,000 in credit card debt at an interest rate of 18.9% and you pay the minimum payment amount or 3% of debt load per month. Paying only the minimum payment, it will take you 25 years and 4 months to pay off the debt. The total interest paid will be $21,767. It literally cost you $41,767 to pay back the debt and that assumes you didn’t take on any new debt!  

Instead, if you contributed the roughly $40,000 over 25 years into retirement savings at a 6% return, you would end up contributing roughly $135 per month and after 25 years you could have $93,554. Which result makes more sense? Having no debt in 25 years or having no debt and almost $100,000 in retirement? 

If you have any questions about whether or not bankruptcy might be right for you please contact your office.  We represent people in Kansas and Missouri and have bankruptcy attorneys available to speak with you the day you call in.  


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