There comes a time in every persons life when they take a good look at their current situation and wonder, “How the heck did I get here?” And contrary to popular belief, burying your head in the sand does not make the issues go away. In fact, ignoring a bad situation can, often times make the situation worse. And nothing seems to make people turn a blind eye to a situation than their finances. There are many options available that simply coat over a bad financial situation, but in most cases they are just temporary and simply put off the inevitable.

Many people avoid bankruptcy like the plague. Mostly due to bad information they have received or the stigma of putting a bankruptcy on their credit. And what will their family and friends say? But, the fact is, bankruptcy is not nearly as bad as you think. I have spoken to many people that filed for bankruptcy relief, and after the fact they tell me it was the best thing they ever did! One person in particular told me that with his debt load he was unable to purchase a home, and it would take him 7 to 10 years to pay his debt down to the point that he would qualify for a home loan. But only 2 years after his bankruptcy he had closed escrow on his first home purchase!

So how do you know for sure that bankruptcy is right for you? What are the signs that point towards filing?

Well, I’m glad you asked.

1Delinquency Notices.This is the first tell tale sign that your budget is beginning to wind down. When you begin skipping payments on credit cards or you miss a mortgage or auto payment. This is a very slippery financial slope. Once you begin missing payments, late fees and increased interest rates begin to make a bad situation worse, very quickly. It is often very difficult to recover once a payment or two has been missed.  And when the creditors begin their phone campaign against you, look out. They can be relentless. 15-20 calls per day! Don’t they have anything better to do? No…not really.

2.  Credit lines are maxed out.

You have been using your credit cards as a lifeline to stay afloat during a tough financial period. But the financial period has still not improved and your credit lines are now maxed out.  There are still options, but not many, and certainly not good. Which brings us to our next point…

3.  You’re cashing out your retirement plans.

At this point things are getting critical. You are now robbing from your future self just to stay afloat. Cashing in on your home equity fits in here as well. You will eventually tap out your retirement and equity and then find yourself in the same boat as when you started. And now that your mortgage is higher with the equity loan, you now have a higher expense that makes the situation considerably worse. And that new higher mortgage payment can last for decades. And quite possibly, a higher payment may eventually lead to a foreclosure.

Boy, that ball is really picking up speed now! But we’re not done yet!

4. You’re taking out high cost loans.

You have run out of other options so now you turn to payday loans. Yikes! While there is talk in Washington of reigning in these predatory lenders, currently you may find a loan of this type could cost you upwards of 70% in interest! In some amazing cases, interest rates of 150% or more have been taken! Maybe you used a vehicle as collateral for a “title loan”? Miss a payment and you will find yourself taking a bus to work.

5. You can’t afford a debt management plan.

At some point on this southbound financial slide, you may consider looking into a debt management plan. This may sound like a good idea, but, once you fill out the paperwork, the debt management company tells you that your monthly payment is not much less than your current payments, or worse they tell you that you just do not have the budget to “qualify” for their program. And even if you do qualify, you may find that after years of payments you are still no closer to being debt free than when you started. I have spoken to many people that where involved with programs such as these and then they finally bite the bullet and file for bankruptcy. Then they wonder why they wasted so much time and money on these management plans.

6. You have no emergency financial back-up.

You may not be as bad off as what we mentioned earlier. You’re making it. It’s very tight, but you’re making it. Suddenly, a serious illness befalls a family member, you get into an auto accident or you lose your job. Any number of things can suddenly push you into a financial tailspin. If you are not paying attention, you may turn to the previously mentioned “financial Band-Aids”, and make a bad situation worse.

If you find yourself in any of these situations, you should speak to bankruptcy attorney. Filing bankruptcy is not an end but a beginning. Sure, it may sting a little, but much like a Band-Aid, it is easier to remove it quickly then over a long drawn out period. Rip and recover! It’s easier than you think!

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