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How to know when it's time to consider bankruptcy

Nobody sets out aiming to file for bankruptcy. Life happens - you lose your job, get a devastating medical diagnosis, face a costly divorce or end up blindsided by other unexpected challenges. Before you know it, your finances are in shambles.

For many people in these situations, bankruptcy is a tool to get back on track. It can help you get out from under excessive debt - often without having to give up your possessions or jeopardize your home. In fact, in many situations, bankruptcy can help save your home from foreclosure. It can also prevent repossessions and put a stop to wage garnishment.

So how do you know if bankruptcy is right for you? It's worth exploring if:

  • You're drowning in debt: The chief purpose of bankruptcy is to get rid of unsecured debts such as credit card bills, medical bills and payday loans - debts you could likely never pay off. Instead of struggling to barely make a dent in what you owe (or, even worse, incurring more debt to make ends meet for the short term), why not wipe away the debt completely and start over with a clean slate?
  • Your credit is suffering: When considering bankruptcy, you may be concerned about its effect on your credit. However, if bankruptcy is even an option, your credit has probably already taken a hit. It may even be at rock-bottom. While bankruptcy will affect your credit in the short term, it's not the financial death sentence many people assume it to be. You will most likely still be able to get credit for important purchases. And you can start rebuilding your credit without a mountain of debt shackling you down.
  • You're facing mortgage issues: If you're behind on mortgage payments, Chapter 13 bankruptcy might help you catch up so you don't lose your home. Likewise, if you have a second mortgage that's underwater, Chapter 13 may be a way to get out of it through a tool called "lien stripping."

Of course, every situation is different. By weighing your options in consultation with a trusted bankruptcy attorney, you can come to an informed decision about whether it's time to take advantage of the protections bankruptcy has to offer.

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