You may have heard the myth repeated so many times that it takes on the air of authority. “Bankruptcy is a last resort.” Well, it’s just not true.
Sure, you could struggle. You could drain fully protected retirement or savings accounts. Or you could stretch your monthly budget to its breaking point, just to make the minimum payments on credit cards. You can think of bankruptcy as a last-ditch solution and keep digging yourself further and further into a financial hole. You could just tread water, trying desperately to stay afloat. But I’d like to challenge the notion that bankruptcy is a last resort.
Bankruptcy is NOT a last resort
True, bankruptcy is not for everyone and every situation. You should definitely talk with a bankruptcy attorney to assess your options. A good bankruptcy lawyer will quickly help you to determine whether bankruptcy is appropriate for your circumstances.
And yes, it’s true: bankruptcy became more difficult to file since the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. That law increased documentation and disclosure requirements.
And finally, in most cases, you should in good faith attempt to exhaust all of your options before filing bankruptcy. Your credit will also take a hit from the bankruptcy.
But a last resort? No.
Bankruptcy is a financial tool, not financial suicide
In fact, bankruptcy is just the opposite of what most people think. Bankruptcy could be the smartest financial choice you’ll every make. In almost every case we file, the positives for the client far outweigh the negatives.
When you’ve reached the point that you cannot possibly repay what you owe, it’s time to consider bankruptcy. If your credit has been sufficiently damaged by debt anyway, then it’s time to consider bankruptcy. If creditors are taking collection and enforcement actions against you, then it’s time to consider the legal, financial process of bankruptcy.
When your total debt exceeds your total income and assets, then you have to take steps to protect your financial best interests, just like lenders do every day.
Change your thinking about bankruptcy
Thinking of bankruptcy as a last resort could lead you to waste a ton of money trying to pay back credit cards that you will never be able to completely pay off. You can find better uses for that money.
It is your right by law to declare bankruptcy. The Bankruptcy Code was written into federal law for a reason. In many cases, bankruptcy is just as good an option for people who want to restructure their finances, not just those who have suffered financial misfortune.
To be sure, the decision to declare personal bankruptcy is not one to be taken lightly. Downsizing or deleveraging may be more appropriate than bankruptcy if your assets warrants liquidation to mitigate unsecured financial obligations. But instead of losing money or other assets — including time — change your thinking about bankruptcy instead. Do not attempt, at all costs, to avoid bankruptcy because bankruptcy is NOT a last resort.