From The Bankruptcy Files: Recognize Trouble Before It Gets Overwhelming

There are many reasons someone may find themselves in enough debt to consider bankruptcy. While choosing to file for bankruptcy is a difficult decision, it's often one that can't be avoided. Here are three reasons many people use when choosing to file for bankruptcy.

1) They have an excessively high debt load. This can be from credit card debt, loans or even medical bills. Through a Chapter 7 bankruptcy with which the slate is effectively wiped clean or reorganization with a Chapter 13 filing, the person in debt can often benefit from the filing.

2) Many file to save their home from foreclosure. Filing for Chapter 13 bankruptcy will automatically stop a foreclosure on a home. The homeowner remains responsible for the amount borrowed, but the past due payments can be included in a repayment plan. The court must approve the plan however. In addition, many people use bankruptcy as a way to save their car and other property likely able to be repossessed.

3) Another common reason people file bankruptcy is when one or both workers in the home lose their job. In this case, they usually have financial obligations they can no longer meet. The typical person's lifestyle is guided by their income and with a sudden loss of employment it can be difficult to stay afloat financially.

Most debtors realize that they are financially in trouble well before they are filing for bankruptcy, but there are a few whose bankruptcy files showcase the fact that possibilities for avoiding this drastic step were not realized. Instead, a steady decline resulted in the dreaded filing and if the debtor had but pulled the fiscal emergency brake just a bit earlier, she or he might have avoided a long term mistake!

Here are some of the most commonly disregarded warning signs that - when observed carefully - may help you to get back on track:

§ You rely on your credit cards to pay for necessities such as food and shelter.
§ You use one credit card to make the minimum payment on another.
§ You routinely only pay the minimum amount due.
§ Your credit cards are maxed out or pretty close to it.
§ Credit card payments are eating up a sizeable chunk of your monthly budget.
§ Collection agencies are writing to you.
§ Credit applications have been denied because you show too many open accounts that are too close to being maxed out.
§ Your debt to income ratio is too high.
§ You do not save any money on a monthly basis but instead barely hang on in an effort to pay each and every creditor.
§ You are one month behind in payments to some creditors.
§ You spending privileges have been revoked, your utilities are shut off (or have been in the recent past), and you are asking friends and family for loans.

While overdue bills, collection agency letters, and the nasty phone calls that are so often associated with dealings with such agencies may cause many a debtor to consider bankruptcy as a viable option, think long and hard before committing to this procedure! Sure, you know that there are serious legal ramifications - such as an adverse notation on your credit report for about seven years - but by and large the real problems associated with this mark go much deeper.

Your ability to buy a house, car, or other big ticket item that requires credit is seriously impeded and even those who will still finance you will do so at frequently exorbitant rates. If this is still not enough to warn you off, here are some situations that should help you determine whether you need bankruptcy protection:

§ Is you fiscal situation dire and you see no way out - not next week and not in a year? This is a sign that you need to consider making a fresh start.

§ Have you pursued other avenues of fundraising to help pay your bills? You might try personal loans, commercial loans, selling assets, or taking on a secondary job. If all these have failed, it may be time for a fresh start.

§ Is your debt affecting your emotional well-being? Nobody feels great about owing money, but some are actually led to clinical depression and in such cases a fresh start is well worth the consequences.

§ Have you tried to create and maintain a budget that includes a repayment plan for your debts? If not, try to do so first, but if you are already stretching the dollar until the eagle grins, it is time to consider letting go.