“Bankruptcy is the beginning of financial stability, not the end.”

Bankruptcy has a cultural stigma people struggle to wrap their minds around. The common perspective is: “If I declare bankruptcy, I admit defeat, I admit I’m a failure.” This point of view often compels debtors to agonize for years and put themselves in a sort of debt purgatory which is usually the most harmful of possible outcomes. We’d like to help you appreciate how to best think about bankruptcy simply as a tool to help you get back on your feet.

How Will You Get Out of Debt?

Pay: pay all your bills, get out of debt
Settle: settle and get out of debt
Bankruptcy: you’ve tried the above and bankruptcy is the solution
Wait and Worry: costs you peace of mind and doesn’t get you out of debt

Beating Yourself Up About Decision Making

People are experts at diminishing our own self worth. Debt can be a persistent reminder that our self worth issues must be justified. Perhaps you misjudged the market, or you hit a rough patch in your life and made some bad decisions, or you put yourself in a position in retrospect you could have avoided. Whatever the reason guilt can have immobilizing effects and prevent one from looking for proactive solutions. We all make mistakes and tend to dwell on them. After a suitable mourning period the best course is to learn from those mistakes and make a better plan for the future.

Circumstance, Risk, and Luck

Even if you can safely say you misjudged the situation, or squandered an opportunity, or should have worked harder, there are factors you’re not likely giving the attention they deserve. Any endeavor or business venture can only be positioned so well to mitigate risk. The market is unpredictable and can move in ways you never could have guessed. Moreover the factor of luck is often overlooked. Luck can play a dramatic role in any situation and should be accounted for. If a debtor becomes overwhelmed it makes good sense to determine what array of factors were to credit for the circumstances. Having a well rounded perspective puts you in a good position to accept your circumstances, learn from the situation, and figure out what comes next.

Options in Detail

Option A: Pay

If you’re in a position to pay your debts either outright or with monthly payments imposed by your creditors then you have a good solution. This option generally hinges on the probability and timing of certain events coming to pass, however, and can result in option D waiting and worrying. If you’ve assessed your debts and potential opportunities and they are largely out of your control you may be ready for option B.

Option B: Settle

Ultimately your creditors just want to get paid. If you’re able to help them understand the severity of your circumstances they may elect to take what they can get and settle. You’ll be defaulting on your debt which will affect your credit score, but you’re still coming to terms with your creditors. Although you’re in control of making your case, your creditors have the final word. Tax laws require you to pay tax on any amount over $600 forgiven by a creditor. You’ll want to take any tax liability into account when weighing whether to negotiate debt or file for bankruptcy. If you’ve made your way through this process and still can’t afford the terms you have two other options.

Option C: Bankruptcy

Bankruptcy is the most proactive choice you can make. If you’ve determined you cannot afford paying or settling it’s time to get through this process and restore your financial stability. If you find yourself in overwhelming debt bankruptcy is the option with the most predictable outcome. The process takes a relatively fixed amount of time and allows you to start afresh with achievable goals.

Option D: Wait and Worry

More often than not waiting and worrying happens less out of choice and more out of fear of what feels like the unknown. Many of our clients report needlessly waiting due to feeling powerless. This process sometimes gets drawn out for years. In this time no progress is made to get out of debt and the bearer must carry on day to day with the weight of debt on their shoulders. The most important step at this point is to determine if a settlement can be made with creditors. If they refuse to settle electing to understand and then begin the bankruptcy process is refreshing by comparison. Bankruptcy has a schedule, predictable steps, and an end date.

Our Advice

Be proactive. Don’t allow your debt to keep you in a holding pattern. The only question that matters is: how are you going to get out of debt? With that figured out the process begins and eventually the process ends, leaving you stronger than you were before. Some wisdom we once got from a monk: guilt is like watering a plant with boiling water.