When is it right to file for bankruptcy

Although many people today believe there is less of a stigma associated with bankruptcy, this is not necessarily true. Declaring yourself bankrupt has a devastating effect on your credit rating and in one fell swoop it cripples your ability to borrow any money. It takes between 7 to 10 years before bankruptcy gets wiped off a credit report which is something you need to consider very carefully.

When applying for a loan, you will be asked if you have ever been declared bankrupt. If you answer no when the truth is ‘yes’, then you could be guilty of committing fraud and as such be prosecuted. In brief, if possible it is always better and wiser to pay off all debts than it is to file for bankruptcy. Another downside is the emotional impact it can have on your life.

Try to Negotiate With Creditors First

As a rule of thumb, creditors would much prefer to talk to you with a view to settling a debt rather than have this discharged through bankruptcy. If you find you are a few months behind with a loan, then it could prove to be a lot easier to negotiate a settlement with your creditors than opt for bankruptcy.

If, however, you are not behind with any payments, creditors will see no reason to lower a debt for you, but with this said no one should ever fall behind in payments so they can have a debt reduced. It does mean that if you have fallen behind through no fault of your own, then you have a good bargaining chip to use with your creditors.

Have You Considered Debt Counselling?

If you have no luck in negotiating a debt with creditors, then you need to think about speaking to a debt counsellor. Consumer credit counsellors speak the same language as creditors and more often than not, successfully get lower interest rates as well as monthly repayments for clients. In the States people have to get credit counselling for six months before they are allowed to file for bankruptcy.

Think About Your Assets

When filing for bankruptcy, you need to get expert advice from a financial guru as they will be able to assist you in determining whether or not any assets you own are worth less than any debts you have. If any loans are secured by these assets, you could file for bankruptcy just so that you do not lose any of them – this could include your home, your car or anything else used to secure against a loan.

What About Savings?

If you don’t have any savings then filing for bankruptcy could be your best option. If you are already being sued by creditors, you need to act quickly by getting in touch with a solicitor or lawyer and then to file for bankruptcy straight away. This could prevent the situation from escalating. Once a request for bankruptcy has been officially filed, any judgements against you can be stopped and this means assets and goods you own cannot be taken off you in order to pay any debts you might have.

Final Resort

Filing for bankruptcy should be considered as a final resort to get yourself out of financial misery. However, although many people believe it to be a ‘quick fix’ to financial problems, it is not. Being declared a bankrupt comes with some harsh realities which include a zero credit rating that will stay on a credit report for up to ten years. During this time, you will not be able to borrow money from lending institutions which could make life very difficult for you. However, if there is no other option than to file for bankruptcy, you should seek legal advice on how to go about it correctly.


About the author: Tom Reynolds, Forex trader and currency news writer for Currency Index, the foreign exchange trader firm from Rickmansworth. Tom – who has done his MBA in Corporate Finance and Bankruptcy Analysis – is interested developing factor analysis for bankruptcy forecasting. He also often writes commentary on current financial and political news and how they affect the Forex market.