Should bankruptcy be a last resort, after all other forms of debt relief has been tried?
Sadly, many people believe this, trying debt consolidation schemes, dipping into retirement accounts and ways to solve debt problems before considering bankruptcy. Filing bankruptcy sooner may be a better option.
Why bankruptcy may be a better choice
Many supposed “debt solutions” can cause significant harm to your financial future. Here are some examples of things that can do more harm than good:
- Withdrawing money from a retirement account. Spending retirement savings to pay off debts is rarely a good idea. If you file bankruptcy, you can keep 401(k) and IRA savings.
- Falling behind on your mortgage. Your home is your most important asset. If you file bankruptcy, you get rid of credit card and medical debts while keeping equity in your home.
- Skipping auto payments: This is another example of robbing from Peter to pay Paul. You need your car to get to work. If you fall behind on your payments, the lender could take it. By filing bankruptcy, you may be able to keep your car and even lower your payments.
- Debt settlement. You could end up paying thousands of dollars for a debt settlement scheme that doesn’t work. Even if the debt is forgiven, you could be left with a large tax bill.
Bankruptcy is the only form of debt relief that provides you with tax-free discharge of credit card debt, medical bills and other types of unsecured debt. In many cases, you will be thousands of dollars ahead if you considered bankruptcy before spending money on debt reduction schemes that don’t work.