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How Do You Know When to Declare Bankruptcy?

Updated on March 17, 2013

Sometimes unfortunate circumstances cause financial problems for families that spiral out of control. For whatever reason, people oftentimes find themselves struggling to make ends meet because they've taken on too many expenses.

It can become a very stressful situation, especially when people take on extra credit cards to help them get through the month. This is treading on dangerous ground, however, because eventually the credit cards will catch up with them and they will find themselves in a heap of trouble. Debt collectors will start calling, demanding money that you don't have.

This experience can be overwhelming to almost anyone who faces it. Declaring bankruptcy could be the best option for many people, however, arriving at that decision is often difficult for most.

If you already know that you are close to filing bankruptcy but would rather try other options first, or you need help with ways to reduce your spending visit Cutting Costs to Avoid Bankruptcy. If you are overwhelmed with debt and unsure that bankruptcy is the right option, this guide might help you determine how close you are to actually filing.

Questions to Ask Yourself

Ask yourself the following questions to determine just how close to having to declare bankruptcy:

Do you have trouble paying bills on time each month? Everyone has unexpected expenses sometimes that are unavoidable and cause financial strain. For example, the air conditioner goes out in your home in the middle of the summer. This is an expensive, but necessary problem that could cause you to skip paying a bill in order to be able to pay for repairs. This isn't the same thing as having trouble each month paying the bills. If you are consistently late paying bills, then you have a problem.

Have you reached or exceeded the limit on most of your credit cards? A good sign that you are in trouble and getting close to declaring bankruptcy is when you have reached the limit or exceeded it on most credit cards and find yourself still applying for more. This is a vicious cycle because credit card companies will keep sending out “pre approved” credit cards to you, even if you have maxed all the others out and can't pay them. Don't keep accepting or applying for more credit because eventually it will catch up with you. One of the easiest things to do is succumb to an offer for another credit card, especially since you need it to pay bills. It can quickly turn around and bite you in the rear.

Are you barely able to make the minimum payment on your credit card accounts? Paying only the minimum payment on your credit cards is a mistake if you can help it. If you can't help it, then you may be closer to declaring bankruptcy than you thought. Credit cards are billed on a cycle that is less than 30 days and causes increased interest charged to the account each month. By paying only the minimum payment will take forever to pay off the entire balance of the card.

Are you dipping into your savings in order to pay monthly bills? Even if you have been paying more than the minimum payment on your credit card and avoiding late fees, if you are using your savings to do it each month, it can cause a big problem. Eventually the reserve will be depleted and then you will have nothing to fall back in case of an unfortunate event like decreased wages or unexpected expenses. If you have nothing to fall back on then you are more likely to have to borrow money.

Do you use payday advance loans or cash advance (credit line) loans to pay bills? If you have had to resort to this, then you are highly aware of the financial whirlpool that you've been drowning in.

Are you still paying for items you no longer own? Sometimes expensive items you've purchased on credit, break and can't be repaired or break down. You still have to pay for the items whether you still own them or not. This is usually a case of bad luck but it still causes a problem in your finances.

Have you been denied credit? Banks and credit unions will deny credit to individuals who fail to meet certain expectations. They compare your expenses to your income and determine whether or not it meets their standards that are based on a percentage ratio. Finance companies are a lot more lenient than banks and credit unions when it comes to their standards in exchange for higher interest rates. You know you are in serious trouble whenever credit card companies deny you credit.


If you answered “yes” to all or most of these questions you are in a high-risk situation, bordering on a fine line between solvency and declaring bankruptcy. You still have options at this point, and can possibly cut expenses in order to avoid bankruptcy. Whatever you decide, it is important to act quickly before the situation gets any worse.


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    • crissytsu profile image

      crissytsu 4 years ago from Texas

      It's amazing how many people live beyond their means and end up in a world of trouble financially.

    • joym7 profile image

      Joy 4 years ago from United States

      Yes, One of the best way is to reduce your expenses.

    • crissytsu profile image

      crissytsu 5 years ago from Texas

      Phil you're absolutely right. Thanks for viewing my hub.

    • Phil W UK profile image

      Phil W UK 5 years ago from England

      Life can be tougb. Somtimes expenses cannot be cut. It can be a knife edge, and hope is all that makes you get out of bed in a morning