If your debt is spiraling out of control, it may be time to consider bankruptcy. Do any of the following apply to you?

  • You only make minimum payments on your credit cards
  • Debt collectors are calling you (or filing lawsuits)
  • The thought of sorting out your finances makes you feel scared or out of control
  • You use credit cards to pay for necessities
  • You’re thinking about withdrawing retirement funds to settle your debts
  • You’re considering debt consolidation
  • You’re credit rating is bad

If any of these statements apply to you, then a Chapter 7 or Chapter 13 bankruptcy could be the best way to resolve your debts. These “red flags” are more fully explained below.

You’re putting everyday necessities onto credit cards or paying one credit card with another

Routinely buying groceries or gas with credit cards because you don’t have any available cash indicates that bankruptcy may be for you. Some people do this because they spend their entire paycheck on debt payments. They’re swamped with debt and merely treading water.

Using credit cards to buy everyday necessities makes your situation worse. You might make a minimum payment of $300, for example, and then be forced to buy $300 in groceries, gas, and other basics with the credit card you just paid. Worse yet, you might take out a cash advance or transfer the balance from one credit card to another. This is not a solution—it’s merely a stalling tactic. If you do this regularly, it’s highly unlikely you’ll be able to pay off your debts anytime soon. In fact, your debts are likely to increase due to interest charged by creditors.

Your interest rates have increased due to missed payments

It’s difficult enough to pull yourself out of debt when you’re being charged reasonable interest rates on your debts. But, if you’ve missed a payment or two, many lenders will raise your interest rates to enormous levels of 30% or more. This means most of your payment goes to interest and very little pays down the principal—making it that much more difficult to pay off your debts.

Your wages are going to be garnished

Wage garnishment is an emergency situation that likely makes bankruptcy your best option. Once a lender sues you and obtains a judgment, they can garnish your wages or levy your bank accounts. They simply make arrangements with your employer or bank to take money directly out of your paycheck or bank accounts. If you’ve received notice that someone has sued you, then you’re at risk of being garnished. Bankruptcy may be the quickest, cheapest way to stop the garnishment.

Debt-related stress is affecting your work and personal life

Needless to say, it’s counterproductive to worry about your debts so much that you can’t focus at work or enjoy downtime with your family. If debt problems are interfering with your life, then declaring bankruptcy could go a long way towards improving it.

You’re considering taking money from retirement accounts to settle debts

You should try to safeguard your retirement accounts at all costs. This money is for your future. Withdrawing retirement funds to settle debts takes from your future. It also potentially creates a tax liability—due to the withdrawal itself or the cancellation of debt once you’ve settled with creditors. Qualified retirement accounts are 100% protected in an Arizona bankruptcy. It’s a shame to meet people who have spent all of their retirement savings to settle debts, only to realize much too late that they still need to file a bankruptcy. Before pulling any money from retirement, you should find out if bankruptcy is a better option.

You’re considering debt consolidation

Debt consolidation companies claim they can reduce your total debt and the amount of your monthly payments by negotiating with creditors. Debt consolidation certainly sounds appealing, but in reality the debt consolidation company benefits the most from the arrangement. Debt consolidation companies generally have no leverage to force creditors to work with you. Creditors can simply opt out of the debt consolidation and continue their collection efforts against you. Before pursuing debt consolidation, you should learn more about bankruptcy and whether it is right for you.

Your credit rating is poor

Believe it or not, bankruptcy may be the most efficient way to improve your credit score. This is true even though a bankruptcy remains on your credit up to ten years. Bankruptcy immediately stops negative reporting by creditors to the credit bureaus and gives you a fresh start. If your credit score is already bad or mediocre, a bankruptcy is likely to only improve it. A few months after you file a bankruptcy, you are likely to receive letters from credit card companies wanting you to apply. In certain circumstances, a person might even qualify for a mortgage just two years after a bankruptcy.

You may need bankruptcy advice

It’s important to explore your Arizona bankruptcy options to see how they stack up against the alternatives. Of course, the general thoughts I’ve shared here are not legal advice. But, I’d be happy to talk to you about your specific matter. You can contact me by calling Davis Miles McGuire Gardner at 480-733-6800, or through www.davismiles.com.