When a bankruptcy is filed, it begins with the bankruptcy Court entering an Order For Relief. There’s a reason it’s called that. Nobody wants to file for bankruptcy, but sometimes it’s the only way to get relief from crushing debt. Most clients who end up fling bankruptcy, however, would never have thought they were going to file. Here are some signs that you may be on the path to bankruptcy.
1. Your credit cards balances are near their limits. The people at FICO are pretty smart. They’ve spent tons of money and have some of the world’s best statisticians working to figure out items that correlate to defaulting on debt. One thing they care a lot about is how much of your available revolving credit is being used. They know that when people start using up all their available credit, it’s a big warning sign that they probably cannot afford to keep maintaining the status quo. If you find your credit cards are all about to hit their limit, that’s a sign that something is wrong.
2. You have no way to save. Whether it’s for a rainy day, a vacation fund, just in case, or for retirement, we all want to save money. If you find that you have to stop contributing to your retirement account, or are unable to save any money each month, that’s a sign your finances may be in trouble. Debt shouldn’t swallow up so much of your income that nothing is left for savings,
3. You’re unable to earn enough to pay down debt. If you find yourself unable to make any meaningful dent in your balances, that’s not a good sign. Credit cards can be a very useful tool. They can also spiral out of control. If you find that the minimum costs each month to maintain the balances is all you can afford, the fist step is trying to lean down your monthly budget. You can also try to work overtime. If after leaning down your monthly budget or trying to add overtime you still can’t get any traction paying down debt, then you may have reached a point where it’s no longer realistic to ever get out from under your debt without bankruptcy.
4. You forego needed items to keep up with your debt. Not going shopping as often, or not buying the newest smartphone is not a problem. Those things are all part of smart money management. If you find yourself foregoing necessary items however, such as health insurance coverage, or vehicle repairs, then there may be a problem. When you’re skipping on necessities to keep up with debt, that’s not a good sign.
5. You’re taking out loans against retirement accounts or life insurance policies to stay current on debt. Raiding your retirement account to try to finally get a hold of debt is never a good idea. Retirement account loans may seem like a solution, but they come with large monthly payments that get automatically deducted right out of your paycheck. Almost always the retirement account loan is a precursor to being right back where you were, but this time with the added problem of a large retirement account loan payment.
6. Despite balancing payments, you can’t seem to get new credit any more. Remember what we said above about those people at FICO being pretty good at rating who to give credit to. If you’re current on payments but you still can’t seem to get approved for anything, it’s probably because your overall debt load is so high that you look like a big risk to lenders. When they see your debt, they know that the odds of paying it back are not good.
7. Robbing Peter to Pay Paul. If you find yourself borrowing from one creditor to make payments on another that’s a sign of a serious cash flow problem. The worst version of this is when people alter their income tax deductions and reduce the amount of income tax deducted from their paycheck to have a larger amount available each month. That decision always catches up with them when it’s tax time. The end result is you probably still owe the other creditors but now you’ve added one of the most difficult debts to get rid of and one of the most powerful creditors out there.
8. Your bank account goes negative during a month. You’re bank account shouldn’t be going negative. If you find that you’re bouncing payments and keep going negative before that next paycheck, that’s a strong sign that the current plan isn’t working and that bankruptcy is likely on the horizon.
9. You’re behind on your home or vehicle loan. Homes and cars are priorities one and two. A home is most people’s largest lifetime investment and it’s the place their family lives. People don’t go into default on their mortgage unless the situation is dire. Similarly, without a car, you can’t get to work. If you’re in default on your mortgage or car loan, you’re past the point where you need to call a bankruptcy attorney.
10. Creditors are calling and sending letters, or have sued you. Once you’re far enough in default that you’re being hounded by creditors, it’s undoubtedly bankruptcy time. Debt collection starts a cycle that is nearly impossible to get rid of. Creditors calling incessantly and sending harassing letters means things have reached a breaking point. Eventually they will sue and you will face garnishment or levy. If you’re at this stage, it’s time to get relief – by calling a bankruptcy attorney to see about your bankruptcy options.