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Signs It May Be Time to Consider Bankruptcy in California

Bankruptcy can be a good option if you’re overwhelmed by debt, but it’s not the only one. So, what are the signs that it’s time to consider bankruptcy, and what are your alternatives?

Is It Time to Consider Bankruptcy?

Debt has a way of creeping up on you. It starts with a missed payment or two; you convince yourself that you have everything under control, and before you know it, you’re wondering how you’ll make monthly payments and stressing about every cent.

Repeatedly missing monthly payments is a sign that it’s time to consider bankruptcy, but there are others:

You’re Using Credit to Pay for Basic Living Expenses

If you’re relying on credit to buy food and cover other basic expenses, with the knowledge that you may not be able to repay those debts, you may be in over your head. You can sacrifice certain luxuries and tighten your belt, but you can’t skip those grocery shops.

You’re Falling Behind on Mortgage or Car Payments

Falling behind on secured loans like mortgages and car loans puts your biggest assets at risk. The more payments you miss, the lower your credit score will fall, and eventually, you could lose your home and car.

You’re Facing Lawsuits, Wage Garnishment, or Collection Actions

If you’ve reached the point where creditors are threatening to take your assets or garnish your wages, call a bankruptcy attorney. You’re already struggling to cover your debt obligations—if you lose valuable assets or have less money coming in every month, it becomes an insurmountable obstacle.

You’re Constantly Stressing About Your Finances

Debt is all-consuming. It may feel like the most important thing in your life. In reality, your health always comes first, and if your mental health is suffering because your debt is growing, you need a solution.

Why Waiting Too Long Can Make Things Worse

As soon as you file for Chapter 7 or Chapter 13 bankruptcy, the courts will grant an automatic stay. At this point, creditors must stop harassing you and cease all collection activities.

The longer you delay the filing, the more damage they can do. They may obtain judgments that allow them to garnish your wages or place a lien on your property. You could also accumulate additional interest and court costs—not to mention the added stress and anxiety of dealing with all those threats and lawsuits.

Consider your options, and if you decide to file for bankruptcy, do it as soon as possible.

Alternatives to Bankruptcy (and When They May Not Work)

A little debt isn’t going to destroy your credit report, nor does it necessitate a bankruptcy filing. Even if your debt feels unmanageable, there may be a better solution.

These options won’t work for everyone, though, and as you don’t want to delay a bankruptcy filing, it’s best not to spend too much time fighting a lost cause.

Credit Counseling: Provided by nonprofits, credit counseling services can help you assess your income and expenses, create a budget, and get you back on track
Debt Consolidation: With debt consolidation, you take out a large, low-interest personal loan and use it to repay all other debts. Your monthly payments will drop, and you can then focus on repaying a single debt. However, you may be rejected if your credit score is low.
Debt Management: A credit counselor can organize a debt management plan on your behalf. They negotiate with your creditors to help you clear your debts within a fixed timeframe.
Debt settlement: A debt settlement company will ask you to move money that would typically go toward your debts into a separate account. They’ll then negotiate with creditors and offer to settle your debt for a single lump sum.

You can also contact creditors to arrange a repayment program or discuss a settlement amount. Lenders are usually receptive to such offers, as they know that if you file for bankruptcy, they may not get anything from you.

From their perspective, it’s better to get a smaller settlement than nothing at all.

How Bankruptcy Can Provide Relief and a Fresh Start

Chapter 7 clears unsecured debts and takes most of the financial stress off your shoulders. It may liquidate some of your assets in the process, but there are many exemptions—assets that the court-assigned trustee can’t sell.

It leaves a significant mark on your credit report, but if you’ve been missing payments and using all available credit, the impact may be minimal, and by clearing those debts and fixing your financial situation, your credit score will improve in time.

Chapter 13 is a little different, as it creates a repayment plan, and you repay some or most of your debts over a period of 3 to 5 years.

Either way, you’ll have a fresh start, with your outgoings no longer exceeding your income, and provided you remain financially responsible, you can improve your credit score considerably within a few years.

Taking the First Step Toward Financial Recovery

If you’re stressed about your finances and can’t see any viable escape route, contact a bankruptcy attorney to discuss your options. At County Law Center, we’ve helped countless Californians in the same position and offer a free initial consultation to discuss the process and help you find the best way forward.