6 Key Signs You Would Benefit Financially From Declaring Bankruptcy

Filing for bankruptcy can inspire shame and discomfort, but it’s really just a legal, and sometimes necessary, debt-relief tool to help people get back on firmer financial footing.

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While nobody sets out to file for bankruptcy, if the alternative is being unable to get out from under a mountain of debt that keeps piling up, or other legal repercussions, it might be the better option.

Experts explained some key signs that consumers would benefit from filing for bankruptcy when it’s used as a debt-relief tool.

If the collections calls or letters won’t stop because you’re “significantly behind on debt payments” and facing lawsuits, garnishment, foreclosure or repossession, it’s probably worth looking into bankruptcy, according to Ashley Morgan, a debt and bankruptcy lawyer and owner of Ashley F. Morgan Law, PC.

Two other important signs they look at when people need to consider bankruptcy are making credit card payments each month and then using the same amount — or more on your credit card — to cover expenses or being maxed out on all your accounts.

“This type of credit card usage can signal you are over extended,” Morgan said.

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Another sign to at least consider bankruptcy is if you are only paying minimum payments for an extended period of time, such as six months to a year with no likely change in your situation, Morgan said.

Paying only the minimum on debt can keep you in debt for years. If this is due to being in a period of struggle due to temporary hardship, like sickness, job loss/underemployment or some other kind of transition period, etc., then your finances may soon adjust, Morgan said.

“But if you have been at a lower-paying job for two years without being able to increase your salary to afford more than minimum payments, then you may want to consider bankruptcy,” she said.

Morgan also recommended considering bankruptcy if there is no realistic way you can pay off debt in three years or less.

Of course, before determining that you really can’t pay off your debt, she recommended taking “a hard look” at your budget.

“You should look at where you can realistically save in expenses, for example, can you reduce eating out or cut extra expenses like one of the three streaming services you have?” she asked. You may even want to consider taking on a second job or side hustle, but Morgan warned, “You cannot reasonably work 80 hours per week for extended periods of time.”