Looking at alternatives to bankruptcy, P.2

In our last post, we spoke a bit about some of the alternatives to bankruptcy, such as debt settlement, debt management, debt consolidation and credit counseling. As we noted, these approaches to debt relief have their respective advantages, and it is important for debtors to consider them before deciding to file for bankruptcy.

How exactly does a debtor know, though, when bankruptcy is appropriate and when one or another alternative approach would be better? To be sure, it isn’t always clear, and it is important to consult with an experienced attorney to have one’s situation evaluated. There are some things to look out for, though, when making this decision. We’ll just mention a few.

For one thing, debtors who receive regular phone calls and other contact from multiple creditors should consider bankruptcy as a potential option. This is especially the case when contact from creditors is causing significant anxiety and loss of sleep. When one files for bankruptcy, an automatic stay is put on all debt collection and this prevents creditors from contacting the debtor over bills. Having that automatic stay in place provides immediate relief from the stress of being contacted and harassed about bills.

Another sign that one should consider filing for bankruptcy is when one is making only minimum payments on multiple bills, especially on credit cards. In addition to this, another sign is when one is using credit cards to pay monthly bills, essentially going into debt in order to pay off one’s debt. This is never a good sign, especially because credit card interest rates and fees are high. When credit cards are being used to pay off multiple bills, it may be time to consider bankruptcy.

There may not be any hard and fast rules about when one should and should not file for bankruptcy. Generally, though, when one’s income is less than one’s monthly bills, that is not a good sign and it may be time to begin considering the possibility of bankruptcy. In a future post, we’ll consider the differences between a Chapter 7 filing and a Chapter 13 filing.