I am often asked by the people I meet with if I think filing bankruptcy is right for them. This is a complicated question that can only be answered after carefully weighing the risks and benefits of filing or not filing. The best way to make this determination is to discuss your situation with a bankruptcy attorney to determine what your other financial solutions may be available to you. That said, there are certain financial events that I feel like are strong indicators that you should explore if bankruptcy is right for you. I have listed my top 10 red flags below:
Payday Loans: In my slanted opinion, I consider payday loans as little more than legitimized loan sharks. They are short term loan businesses that lend you money at astronomical rates – 300% at times – and I wish I was exaggerating. If you are desperate enough for cash to get involved with a payday loan company, then you probably have too much debt for your income level.
Title Loans: These are often just has high interest as payday loan, except they are even worse from the standpoint that they put a lien on your car! Now you are not only dealing with ridiculously high interest, but you have a secured debt which is more complicated to deal with.
Cashing Out Retirement Accounts: If you are considering cashing out a retirement account to pay debt then STOP immediately and speak to both a bankruptcy lawyer and an accountant! Your retirement money is important to the point of bordering on being sacred. That is money you have sacrificed your whole life to squirrel away for that inevitable day that you either cannot work or choose not work continue working. This money is one of the most highly protected assets as far as the law is concerned. If you file and discharge your debt, your retirement account is exempt. So you can get rid of your debt without robbing your future. Also, not only will you be taking money that was intended for when you are old and grey, but you will also most likely be hit hard in early withdraw penalties and taxes!
Maxed Out Credit Cards: Lets face it, credit is a tool, but it is designed to cover you expenses when unpredictable situations occasionally exceed your ability to pay for your financial obligations. Maxing out your credit may have been caused by any number of factors, but regardless of the reason, it is not a sustainable financial situation. Eventually your credit resources will be exhausted, and when they are you will need to find a solution fast to avoid debt collection attempts.
Car Repossessed: A study that looked at what bills people choose to pay and which they will default first showed that a vehicle is one of the last debts a person will stop paying, even over their mortgage payment. This is because your car connects you to your job, in some ways it is your connection to your paycheck. If you have stopped paying your car payment, it is likely an indication of much deeper financial struggles.
House in Foreclosure: Your house is probably your largest asset, not only financially but practically. On one hand, your equity in your home may grow faster than many of the investments you make (of course the housing crash has even made us second guess that). On the other hand it is a practical asset in the sense that it is where you sleep at night, where you raise your children, celebrate holidays, and grow older with your loved ones. If your financial condition has eroded to the point your home is in foreclosure, then you need to understand two things. First, the foreclosure may be just the tip of the debt iceberg. Second, it may not be too late to save your home, but you need to call a Kansas bankruptcy lawyer immediately.
Repeatedly Overdrafting Bank Accounts: It is one thing to have a check you wrote slip your mind and overdraft your account. It is another thing to be chronically overdrafting your bank account. This is a clear indicator that you don’t have enough money, and what you do have is going too many different directions.
Wage Garnishment: This is a painful experience for anyone who goes through it. But before you get garnished your creditors had to attempt to collect the debt, file a lawsuit, get a judgement from the court, and then execute on the judgement by garnishing your paycheck. Once you get to this point, you will be living on a fraction of your income until you either pay off the amount owed in full, lose/quit your job, or file bankruptcy. Also, my experience has been that once one of your creditors have gone that far, then other creditors will probably not too far behind.
Getting Behind on Taxes: One common practice for people who are struggling with too much debt is to adjust their tax withholding so their paychecks are bigger. All too often this results in winning the battle but losing the war in the sense that they get more money every week, but now they owe money to the IRS, the most powerful debt collector on the planet!
Crushing Medical Debt: From my perspective it appears that medical debt is the most persistent cause of bankruptcy. In fact, nearly two-thirds of the bankruptcies in this country involve medical debt. It is no secret that our medical system is broken and often those who have the least are the ones most vulnerable. No one plans for a medical emergency, yet they come when it is least convenient. If you are facing an insurmountable amount of medical debt, you owe it to your self to speak with a bankruptcy lawyer.
These factors are indicators that bankruptcy might be your best option; however, I frequently talk people out of filing bankruptcy when there is a better alternative. If you have too much debt and not enough money, the best thing you can do is to speak with a Kansas bankruptcy lawyer to find out what your options are.by Adam Mack, JD
