It’s a good question. Over the past 23 years representing Chapter 7 and Chapter 13 bankruptcy clients have told me how they knew it was time to get protection from debt. There are five ways most people know.
1. Age and Retirement Savings. When you look at your debts and your assets you can do the math any way you want, but at your age, you will be working long and hard until the end of your days and never be free of debt. What do you want to do in your Golden Years? Travel? Grandkids? Retirement savings? OR working weekend jobs and living like a monk until your health gives out? At some point we all must save for retirement. A bankruptcy now can free income to save for security in later years.
2. Taxes and Child Support. If you have large recent tax debts or are struggling under a large family support, it is hard to make ends meet. While these two kinds of debt cannot be eliminated, most others can. Bankruptcy will remove all other debts and allow you to support your kids and pay tax bills and still eat regularly.
3. Heavy Debt to Income Ratio. Your debt burden will grow faster than you can pay it off if you can only afford minimum payments of credit cards. The credit card lenders watch your credit reports and see when your payments are made at the minimum rate.
They can raise your interest rates based on slow payments to other lenders (that’s right, read your contract, it’s ugly). It is like tightrope walking with a banker on your back. One slip and all the money you have paid them is taken in interest charges; leaving you owing the same or more than you owed before you sent them $10,000.00 in payments!
4. Garnishment of Pay Check or Bank Account. In Alabama, if you are sued by a creditor, they can take a judgment against you and then force your boss or your bank to take your hard-earned pay and give it to the creditor. They can take all of your money in any account that can be found. They can take twenty-five cents out of every dollar you earn at work! Bankruptcy will stop the Garnishment at any time.
5. Automobile Repossession or Home Foreclosure. These two events can come back to bite you twice. After an automobile repossession (or voluntary surrender) or a home foreclosure, things are bad because you have lost the automobile or home and must find a replacement. Then, a few months later, just as you are getting back on your feet, they come back for the second bite.
If your home sells at foreclosure for less that you owe on the mortgage, you still owe the difference, plus costs of sale! When cars are repossessed the lender sells them for almost nothing at auction and comes after you for the difference, plus costs of sale and transport. Bankruptcy will protect you from these ugly traps!