Credit Repair and Bankruptcy: When should bankruptcy be an option?
by
Ted
Wooley
The short answer is…when expenses are more than your monthly income and the deficit is growing each month, with no realistic expectation of increasing your income.
Bankruptcy is a serious mark on your credit report and will devastate your credit score. Therefore is should be avoided if at all possible. That said, bankruptcy has built in protection from creditors. If a creditor appears likely to sue and seize assets or garnish wages, then bankruptcy may be the necessary cure. This is the situation for which it was created.
In my experience, people are in one of three situations when they begin to ponder bankruptcy and how it is going to affect their credit scores:
- They have had a temporary setback with a major expense. They make enough money to cover their monthly bills, but if they do not get a large sum of cash or financing, they are going to damage their credit soon. This is the lease serious situation due to the fact that there is money left over each month to throw at the big bill. The worst financial crises follow one of the big three: divorce, serious medical care, or job loss.
- They have increased their monthly spending gradually until their bills now exceed their income. They are falling further behind each month. If they do not increase their income and/or decrease expense, they will soon be the proverbial snowball rolling down the hill toward the financial cliff.
- This is the worst case. It is a combination of both one and two. They have been spending more than they make for some time, relying on credit cards to finance the difference, and then have a major setback such as an accident or a cut in pay. They have no reserve cash and virtually no credit that has not be tapped.
Most bankruptcies could be avoided with an extra $250 in monthly income. What can you do to increase your income temporary? Rent out a room. Do handyman work? Baby-sit? What talents have you not used in years that you could rely on now, to increase cash flow temporary to get over this hump?
If you can not avoid bankruptcy, or if you have already falling so far behind that your credit report is in shambles, you need to start rebuilding credit as soon as possible. You need to allow at least twenty-four months to establish new credit tradelines that will be the foundation for increasing your credit scores.
Ted Wooley founded Horizons Unlimited Group in 1987. He has used his 20-year business experience to help equip thousands of individuals to achieve their personal dreams as an author, lecturer and a respected Internet and business consultant. http://www.huginc.com
|
