Should declaring bankruptcy be an option for you?

Should declaring bankruptcy be an option for you?

  • Bankruptcies have been on a steady decline since an all-time high of 2 million filings in 2005
  • Two-thirds of bankruptcies are related to medical bills
  • How to file bankruptcy in Wisconsin for free

Bankruptcies in America have been on a steady decline for nine consecutive years, thanks to a healthy economy and strong jobs climate that has helped most consumers keep up with their debts. But although the economy is doing well and incomes are rising, surprise medical bills and high-interest rates can always find a way to eat away at your Paycheck. 

The truth is, most Americans don’t know when they’ll find themselves in a financial pickle. Two-thirds of all bankruptcies are related to medical issues, which often occur unexpectedly. For farmers in the midwest, bankruptcies have become more commonplace due to the trade war with China (Wisconsin had 48 farm bankruptcies from September 2018 to September 2019 – higher than any other state).

How to determine if bankruptcy is right for you?

Filing bankruptcy isn’t easy. From hiring a lawyer, to taking credit counseling, going to court, paying a filing fee, meeting with creditors and even giving up your car – it is a tedious process that you may be able to avoid. 

If you find yourself with a mountain of debt and your Paycheck is unable to keep up, start by researching all of your options.

Step 1: Research and get free credit counseling

Get free advice from a debt counselor. American Consumer Credit Counseling, Inc. provides free credit counseling to help you determine the pros and cons of bankruptcy vs. other ways to pay off your debts.

Ask these important questions before making the decision to file: which type of bankruptcy is right for me? Can I afford the necessary fees? Am I likely to qualify? Am I willing to live with the stain on my credit report for ten years? Make sure you research important bankruptcy terms, know what type of debt can’t be forgiven, and understand the long-term consequences that will stick with you.

Step 2: Consider debt consolidation instead

Debt consolidation is like taking five bills and turning them into one, likely at a lower interest rate so you can pay debts faster and more efficiently. Consolidating debt can help you avoid having a bankruptcy on your credit report, which makes it difficult to buy a car, home, or any other major purchase for at least a decade.

To start, calculate what your consolidated payment might be and determine if you can make monthly payments without taking out another personal loan. Debt.org, America’s Debt Help Organization, is a great resource for this. 

Step 3: Avoid the following before filing bankruptcy

If you speak with a counselor and decide to file bankruptcy, the last thing you want to do is make yourself look worse before applying for a fresh financial start. Alllaw.com outlines a few important things to avoid before filing, like adding more debt to your credit cards, transferring property in an attempt to avoid losing it, draining your retirement accounts, or making unusual deposits into your bank account.

For more on what not to do, check out the biggest things to avoid before filing Chapter 7 or Chapter 13 bankruptcy. 

Step 4: File bankruptcy in Wisconsin if necessary

If you determine that bankruptcy is a better option than debt consolidation, you must decide if you want to hire a lawyer or try to file without an attorney. There are government-backed nonprofits that can help you file for free, if you’re willing to do some of the leg work on your own. 

To work with an attorney in Wisconsin, contact your local or Wisconsin state bar association’s Legal Referral Service (LRS) and request an attorney who practices consumer bankruptcy law.

How does bankruptcy affect your financial health over the long-term?

As Experian writes, “bankruptcy can mean losing real estate, vehicles, jewelry, antique furnishings and other types of possessions.” You won’t be able to apply for new credit cards, and you’ll have a hard time getting a loan for a home or car purchase. If you do qualify for any type of loan, it will likely have a much higher interest rate.

Bottom line: avoid bankruptcy from the start

It can be hard to get ahead when high interest payments, surprise medical bills and miscellaneous fees keep weighing on your Paycheck. However, there is plenty you can do to reign in your spending and avoid bankruptcy altogether.

Pay all your bills on time to avoid extra fees and high interest payments. Avoid racking up more debt if your credit cards are already near their limits. Cut back spending where you can, and stick to a personal budget. Following a few simple rules for financial well-being can help you avoid adding a bankruptcy chapter to your life’s book.

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