Pay Off Debts or File for Bankruptcy?

Making the decision to either pay off debts or to file for bankruptcy is a big decision. The consequences will last for years to come. Bankruptcy is a right to American citizens under the United States Constitution. There are stipulations with using it, such as being limited to how frequently you can use it. In addition, whenever it is possible to pay off debts as originally agreed, it is best to do so both to protect your credit and to keep your word. However, making the decision between these two financial decisions is often a difficult one and one you should discuss with your attorney.

When to Pay Off Debts

There are numerous situations in which paying off your debts is simply the best route to take. To know if you can do so, determine how much debt you have. Consider making payments on that debt over the next three to five years. Then, consider the following.

• If you continue to pay the debt off month to month, without filing bankruptcy, you will need to pay more than the minimum payment to pay the debt off within the next few years. Consider the financial cost of compounding interest during that time.
• If you have income and do not want to file bankruptcy, consider using debt settlement. For this option to work, consider if you have enough money to approach lenders to pay off your debt within a few payments.
• Chapter 13 bankruptcy can help you to repay your debt over three to five years and discharges other debts, including most medical debt and credit card debt.
• Chapter 7 bankruptcy is best for those who do not have the means to repay the debt at all. In this situation, you will need to pass a means test, which requires that your income be at or under your state's median income.

In all situations, consider the long term benefits. If filing bankruptcy will help you to get a better financial start on your life, it may be the best financial move to take. Take steps to avoid being in this position again.

Hire an Attorney

An attorney can help you to determine if you should pay off debts or if you should file bankruptcy. The attorney can also help you to determine if you qualify to file bankruptcy at all. Many people will want to use an attorney to help them to file bankruptcy properly to ensure their situation is handled within the law.