Businessman showing empty pockets concept for bankruptcy, poverty or penniless

Kim Basinger did it. Ditto for Rapper 50 Cent. Francis Ford Coppola did it two times. Willie Nelson, Meat Loaf and Walt Disney all did it as well.

Even this country’s founding father; Thomas Jefferson has done it. Done what? They have all filed for financial protection through bankruptcy.

Not only celebrities and politicians but no doubt every American has considered bankruptcy as a viable option to money woes at one time or another.

But is it always the best option? There are some guide-lines you may want to consider before ever declaring bankruptcy. Here are a couple things to consider:

How Much is Owed?

First and foremost, what is the amount of debt that is owed? With the above mentioned people who filed for bankruptcy protection, literally millions and millions of dollars were owed making bankruptcy a real good choice. With most folks however, such large sums are barely fathomable. But, we still have to examine closely the dollar amount we are trying to get relief from.

Often bankruptcy is chosen when there is only a few thousand dollars at risk. Considering the long-term repercussions of filing for bankruptcy, the dollar amount should be worth the cost. Some experts maintain that the debt should be double the income derived in one year. For example, if you have $40,000 a year income, your debt amount should be $80,000 or more before you consider bankruptcy. Also, you can only count debt that is not collateralized. In other words, you cannot include your home or auto loan as part of the debt amount.

Can the Payments be Made Manageable?

Second, consider whether or not settling with a creditor may be an option. Many times a creditor will also arrange for more manageable payment structure if you just take the time to call. Usually this will mean a suspension of the line of credit as part of the negotiation, but probably, due to the economic hardship more credit is not an option.

Who is the Debt With?

Third, has the debt gone from the original creditor to a subsequent collection agency? The answer to this question is very important in your decision making process before you pull the trigger on a bankruptcy. If the problem is well advanced and you are dealing with collection agencies, the very stress related to collection efforts may cause you to feel compelled to file for bankruptcy even though it may not be your best option. In this instance we do well to consider the next point.

Are You Being Threatened?

If the financial situation is such that you simply cannot make timely payments and the debt is no longer with the original creditor, collection efforts and threats made by a collection company will not change anything…if you don’t have the money, you don’t have the money. But this doesn’t mean you are entirely without resources. Available to you are your legal rights. Rights that do not include declaring bankruptcy but can conceivably get you out of debt.

When Debts Go to Collections

Collection agencies are notorious for collection protocols that break the law. Unfortunately, most consumers are unaware that their rights have been violated. This is probably the biggest reason why the laws are broken with impunity in the first place; the collectors know they will, in all likelihood, get away with illegal collection efforts. The original creditors and also the credit bureaus are guilty of law violations as well. When this happens, you can often have the debt forgiven and could possibly win a cash award as well. If the debt is forgiven, is there any longer a need to file bankruptcy? No, there is not! This is the reason why many of the clients working with the Heritage Group are able to avoid bankruptcy and get a clean start too!

Editor’s note: Even if a civil judgement is entered against you for a debt, you still may not have enough resources to pay the debt. Also, it is extremely difficult for a collector to take money from you even armed with the judgement, so it still may be hasty to declare bankruptcy at this point. Also, you can make it even more difficult for them to collect by implementing just a few strategies. For a consideration of these strategies, and how to take a legal stand during this troublesome time, please read our up-coming blog that will deal specifically with this subject.

Disclaimer: We are not a law firm and do not give legal advice. Also, the blog information is for educational purposes only and not to be construed as legal advice. In matters as serious as this subject deals with, we encourage seeking out a competent lawyer that specializes in consumer law or bankruptcy. Clients of the Heritage Group can make appointments with the attorney we use if they desire, by calling our office.