If you’re in the throes of financial hardship, you may think it’s time to declare bankruptcy, but be careful with this. While it is true that this type of option can probably help you if you have no other way out, but for most people, bankruptcy should be taken as an absolute last resort instead of the first thing they think of. With people filing for bankruptcy in record numbers, this is obviously not the case at least at present. Let’s take a look at when bankruptcy is and is not the best choice, and what you can do instead.

What kind of debt do you have?

If the debt you have is mostly unsecured debt like credit card debt, it’s likely that you’re not going to have to file for bankruptcy. This is especially true if you still have a steady income and would be solvent were it not for your debt.

If you have debt that has come upon you all at once (or nearly so) and is staggering, like the medical expenses debt you can acquire after a significant illness, it may very well be that you can’t dig out from under it and that bankruptcy would be your best option.

There are certain kinds of debt that cannot be wiped out via bankruptcy such as tax liens, child support, student loans, and more, and if a major part of your indebtedness is made up of this kind of debt, bankruptcy is not going to be a help to you.

However, no matter where your debt comes from, it’s important that you consult with a bankruptcy attorney before you make any decisions; again, bankruptcy should be an absolute last resort and not the first thing you think of in such a situation.

Do you have a decent income?

Were it not for your debts, could you make ends meet fine? If that’s the case, you can probably come up with a plan whereby you pay back your debts (especially unsecured debt) without having to file for bankruptcy.

Understand that while bankruptcy can be a help to you, it is also not designed to encourage people or entitle people to mis-manage their money. This aspect of bankruptcy was one of the parts that was changed significantly with the new bankruptcy laws, which causes the courts to look much more closely at your financial circumstances before they will approve you to file. Yes, you must be approved to file, it is not an automatic right.

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Recovering from bankruptcy can be difficult. Bankruptcy not only affects you financially, it also sets you back socially. From the high publicity to the court hearings to having your financial life being scrutinized, it can all be draining. Despite all these challenges, you have to pick yourself up and rebuild your finances. After all, life has to go on.

When you are declared bankrupt, you can be discharged after one year. Though it is not automatic as the court could postpone it. In that one year, you should have learnt your lesson and made some extreme changes to your financial status. With the new laws in place, the inclusion of counseling will help you through this tough time.

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